Examination of Global Market Performances

Market performance has been broadly mixed over the May – June 2023 period. While local equity market recorded negative performance (FBM100 Index -2.34%), global equity market delivered positive return (MSCI ACWI (USD) index +4.25%) as largely underpinned by US market (SPX Index +6.74%), technology/ AI theme (Nasdaq Composite Index (USD) +12.77%, Taiwan Index (TWD) +8.58%, Korea (KRW) +2.51%) and Japan market (NKY 15.03%).

US equity market did remarkably well during the May – June 2023 period due to positive services-related momentum, upward growth rate revision, robust labour market, lower inflation rate, and rate hike expectations at tail end with US Federal Reserve (“Fed”) having kept rate unchanged in June. Such positive vibes outweighed US Fed’s hawkish forward rate guidance where terminal rate may end at 5.5-5.75%. However, such backdrop of hawkish rate guidance from US together with Euro and UK central banks, has generally led to higher bond yields (10-year US yields +42bps to 3.84%, 10-yr Malaysia bond yield +12bps to 3.85%), as well as weaker Asia currencies (Ringgit Malaysia -4.7% to 4.67/USD (CNY -4.9% to 7.25/USD, Yen -5.9% to 144.3/USD).

Meanwhile, at the local front, Malaysia’s economic growth remained commendable as driven by domestic consumption and development expenditure factors despite contractionary external trade growth. However, the weaker Ringgit, China’s slower than expected recovery momentum and local political uncertainty in view of upcoming state elections have dampened local equity market performance. Having said that, the local equity poor performance was largely in tandem with regions such as Asia Pacific ex-Japan (MXAPJ Index +0.03%) and China (CSI 300 Index -4.63%).

As we enter 2H 2023, on expectations of waning global growth momentum stemming from the US & Euro services sector, softening job market, and continuing disinflationary momentum, major central banks’ hawkish rate hike guidance is likely to subdue. Besides, while the US & Euro recessionary risk in 2023 are likely not imminent due to strong services growth, the risk is shifted to 2024 due to lagged negative impact of protracted monetary and liquidity tightening conditions on consumers’ consumption growth and corporates’ profitability. The negative impact could worsen should US & Euro continue to hike rates aggressively due to sticky inflation.

Given the challenging backdrop, we continue to advocate the bond market to continue to perform positively though could likely trade range bound in the near term given the continued US & Euro tightening mode while BNM policy rate hikes (if any) are likely to be limited to maintain growth accommodative. Besides, the balanced/ bond funds remain a good risk diversifier instrument from equities in current market cycle.

On overall equities, we continue our caution view on global equity market but are more optimistic on Asia equity markets at large including Malaysia equities given better risk reward compared to global equities which have performed well relatively (MXWD Index +11.4% YTD). With local equity market having fallen (FBM100 Index -4.9% YTD), we are positive on the local equity market given low equity valuations vs historical average, higher earnings yield premium and low foreign shareholding. Meanwhile, we expect China stimulus measures to remain supportive of China economy recovery activities in particular property market, and MYR likely to strengthen when USD softens on US rate pause or cut. At PAMB, we have a range of well diversified funds to tap on. We prefer funds type like PRULink Equity Focus Fund, PRULInk Equity Income Fund, PRULink Equity Plus Fund, and PRULink Asia Equity Fund, as well as the bond fund type like PRULink Bond Fund and balanced fund type like PRULink Managed Plus 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.