5 min read    I     Date: 26 August 2024

Latest Market Development

Recent market volatility has been largely driven by concerns about the health of the U.S. economy, following disappointing July jobs data. The report revealed weaker-than-expected payroll growth with nonfarm payrolls increasing by only 114,000 (below the anticipated 175,000) and a rise in the unemployment rate from 4.1% to 4.3%. This data sparked fears of a potential recession, leading to a sharp sell-off in the markets.

Despite these concerns, the current strength of household and corporate balance sheets suggests that a severe recession is unlikely, though risks are building. The Federal Reserve is expected to respond by cutting rates by 25 basis points in September, November, and December, with an additional 25 basis point cut in November now considered a possibility. However, market reactions have been negative, reflecting a need for strong economic data, improved earnings, and reassuring statements from the Fed to restore confidence.

Globally, additional factors have exacerbated market stress. The Bank of Japan's unexpected decision to raise interest rates and reduce bond purchases has led to a significant appreciation of the yen, impacting carry trades where investors borrow in yen to invest in higher-yielding assets. This has contributed to weakness in U.S. equities and a broader risk-off sentiment.

In ASEAN and Malaysia, markets have been volatile but have outperformed regional peers due to their domestic-driven components and muted tech exposure.
ASEAN currencies, particularly the MYR, have also fared well. Recent movements may be technical, influenced by the yen's appreciation, but the fundamental outlook for ASEAN and MYR remains positive. With U.S. Fed fund rates and the USD potentially peaking, there is more room for maneuver. Despite ongoing volatility, opportunities arise when prices fall below fundamental values. We are reassessing company fundamentals and different economic scenarios for the U.S. Interest rate-sensitive and high-yielding stocks may present attractive opportunities.

Portfolio Strategy

While we anticipate no hard landing for the U.S. economy, concerns about a slowing economy persist. Lower U.S. rates and a softer USD could support Asian equities and currencies. We are focusing on sectors such as technology (semiconductors, chip designers, data center-related companies, and internet platforms), industrials with grid capex exposure, high dividend yielders, and companies benefiting from Korea’s value-up program and strong domestic demand in India. We are also exploring idiosyncratic investment ideas where returns are driven by factors beyond economic growth or major macro trends.

Despite the current uncertainties, the market often presents opportunities in times of volatility. By focusing on fundamentally strong companies and sectors poised to benefit from shifting economic dynamics, investors can position themselves to capture potential upside as conditions stabilize and improve. History shows that markets recover from downturns, and with a proactive approach, there are promising avenues for growth and resilience ahead.

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