Equity and Bond Markets Bounce Back from October Dip
Both global equity and bond asset class in general had a strong recovery in November, following the post October dip. The global equity market was up, recovering by +9.37% MoM to a record 14.79% YTD (USD). The equity market surged due to higher risk appetite, led by lower bond yields which also entailed global bond market rallying about +4.68% MoM to 1.50% YTD (USD).
Such broad positive market momentum was underpinned by the continuing disinflation and economic indicators suggesting that the developed market central banks’ rates are close to peak. The inflation data largely reported lower, in line with expectations in the developed markets as well as in Asia. Besides, the mixed to softer tones underlying the US’s economic activity momentum, the sluggish Euro and China growth indicated slower global growth prospects. As a result, coupled with certain US Fed members’ dovish monetary guidance, market expectations of the extent of 2024 rate cut in the US and Euro have increased to about 110 bps by 4Q 2024 from about 70 bps respectively. Nevertheless, with the inflation data having yet to reach the Fed or ECB target, and US job market remains relatively resilient, market speculation of rate cut timing and quantum will remain volatile.
Contrary to improving market risk appetite, China market dipped -2.44% MoM, worsening YTD loss to -9.7% as weighed by recent mixed economic data activity in Oct, failing to sustain the positive economic impulse seen in 3Q. The poor property market sentiment, stemming from weak consumer confidence and private property developers’ overhanging financial stress, remains the key hurdle to regain consumers’ confidence and investors’ risk appetite given the property sector contributes sizably to economic growth and individuals’ wealth. Nevertheless, market optimism could hinge on the bottoming economic growth in view of the continued pouring of China government’s policy measures to boost property buying sentiment, stimulate economy via infrastructure development funding and pump in monetary liquidity support.
Malaysia’s equity market, playing a defensive role relatively, was up only +1.18% MoM to -0.22% YTD underperforming global equity market. Nevertheless, Malaysia’s economic fundamentals remained decent with 3Q GDP recorded stronger at +2.6% QoQ, keeping 3.3% YoY growth like 2Q and, exports growth decline narrowed to -4.4% YoY in Oct although industrial production growth seemed lackluster. The positive consumer spending growth backed by general stable unemployment rate and tolerable inflation, remains the key economic driver. In addition, BNM kept rates unchanged at 3% in Nov again since July and expected to remain accommodative and growth supportive. The lower reported Oct CPI at 1.8% YoY and expected gradual removal of petrol subsidies in 2024 are supportive of inflation path to hover within the range of 2.8% - 3.4%. As such, in tandem with global bond market rally, the Malaysian bond market is also up +2.06% MoM to 5.60% YTD.
Overall, we remain positive on local equity market in view of the government’s growth, supportive and climate transition initiatives, decent economic fundamental dynamics, and stronger earnings growth expectations. Besides, undemanding equity valuation, all time low foreign holdings and milder USD outlook with US rate cut underway in 2H 2024 should all bode well to local equity market in the long run. Meanwhile, China’s rising support for its economy and markets offers a tailwind for its struggling markets and Asia trade growth including Malaysia.
Nevertheless, as the market has recovered strong in Nov, in line with our earlier view that 4Q seasonally tends to generate positive market momentum, and pricing in much of rates peaking and growth unlikely to dip into recessionary path in the near term, further upside potential on the global equity could be limited. But we maintain our optimism on the local equity market front and the bond market will remain supported and a good risk diversifier. At PAMB, we have a range of well diversified funds to tap on. We maintain our preference for funds type like PRULink Equity Focus Fund, PRULink Equity Income Fund, PRULink Equity Plus Fund, PRULink Asia Equity Fund, PRULink Asia Great and PRULink Global Leaders as well as the bond fund type like PRULink Bond Fund and balanced fund type like PRULink Managed Plus Fund and PRULink Asia Managed Fund.
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.