Equity and Bond Market Dynamics in Q1 2024: A Global and Local Perspective
In March, the global equity market surged higher (+2.67% Month on Month, +7.21% Year to Date*) primarily stemming from US (+9.40% YTD) and Europe (+11.56% YTD), while Malaysia equity market was flat (FBMKLCI -0.68% MoM, +5.66% YTD). Main positive market driver was the “goldilocks” economic environment, constituting stable economy and lower inflation that warrants positive corporate earnings growth and rate cuts.
Aside from the stable US economy, even weaker economies like Eurozone contracted less, and China held steady in February. Additionally, market risk appetite also increased as both US and Euro central bankers provided dovish rates guidance, maintaining 3 rate cuts in 2024, likely starting in June. This also led to positive bond market performance in March. Global bonds were up +0.47% MoM, narrowing losses YTD to -2.29%, while Malaysia bonds were up 0.74% MoM, increasing gains YTD to 1.31%. Nevertheless, the rate cut expectations was volatile given the still resilient job market, inflation reportedly higher than expected and inflation expectations remain higher than pre-pandemic. Besides, the recent oil price rise (+6.20% MoM, +12.94% YTD) led by excess demand and OPEC+ production cut, posed rising risk to inflation, which may reduce the rate cut expectations.
On the local front, during BNM’s Economic and Monetary Review held in March, BNM expects GDP growth of 4 - 5% in 2024 (2023: 3.7%) driven by household spending, improvement in investments from ongoing multi-year projects and national masterplans, global trade recovery amid the tech upcycles, and a further rebound in tourism. BNM also expects inflation to be within a broad range of 2 - 3.5% in 2024 (2023: 2.5%), reflecting the anticipated impact from subsidy rationalisation, which is likely to be announced in 2H24, given the need to consolidate fiscal deficit in view of the current large subsidy bill and no GST in the near term. On the MYR currency, BNM believes the MYR is undervalued fundamentally. BNM kept policy rate at 3% in March and will maintain its focus on ensuring sustainable growth and price stability.
While equity market did well, the alternative “safe haven” asset class like Gold also up (+6.85% MoM, 5.21% YTD). Thus, given such “unusual” correlated market performance coupled with expensive global equity market valuations at high level, we maintain our constructive positive outlook on equities with preference for local equity market including Asia for better expected return relative to risk, while we maintain investment positioning in local bond market for risk diversification and expected stable return. Key investment risks for 2024 could arise from inefficiency of local policy execution, sticky inflation rate, US higher rates for longer and rising US – China trade tension.
Given PAMB’s array of funds offerings in respect to geographical coverage and investment styles, PAMB funds can ride in tandem with the global market performance. Given our more positive outlook on Asia and bond market, we prefer PRULink Managed 2 Fund and PRULink Managed Plus Fund for investment diversification; PRULink Asia Growth Fund, PRULink Asia Equity Fund and PRULink Asia Managed Fund for Asia exposure.
*26/3/2023
Written by Esther Ong
Esther Ong is the Investment Market Strategist of Prudential Assurance Malaysia Berhad (PAMB).Esther is a qualified Chartered Financial Analyst as well as having obtained MSc Investment Management and BSc Insurance & Investment with a Financial Markets Association of Malaysia (Persatuan Pasaran Kewangan Malaysia or PPKM) license.
This feature is to provide general information on the current situation of the economy with the information available at the given time. This feature does not constitute investment advice and cannot be used or substituted as such. The opinions of the author may not necessarily reflect the views of Prudential Assurance Malaysia Berhad.