Market and Investment

Fed’s hawkish stance keeps pressure on market

Both the equity and bond market weakness worsened in September. Global equities fell -4.93% MoM (MXWD Index) and global bond fell -3.19% MoM (Bloomberg Global-Aggregate Total Return Index). However, as the Malaysian market was resilient relatively, weakened marginally with local equity -0.82% MoM (FBM100 Index) and local bond down -0.58% MoM (Markit ALBI Malaysia Index).

The global market weakness was due to risk appetite decline on the back of the US Federal Reserve’s (“Fed”) hawkish pause, which led to higher US rates and stronger USD. While US Fed kept rates unchanged for a second time in Sept at 5.50%, the Fed indicated another possible rate hike in Nov or Dec 2023, and a reduced rate cut in 2024 by 50bps starting in 2H2024. The hawkish US rate hike guidance contradicts the ECB’s dovish rate hike guidance which indicated the Sept rate hike to 4% has reached an end. In fact, while there is monetary policy divergence among global central banks, US’s rates guidance seems to be the most hawkish one. Among other central banks, China cuts rates, Japan maintains yield curve control, Thailand hikes rates and other Asia central banks largely maintain rates.

The other driver to higher US rates was concerns of inflation likely to stay high given the recent oil price rally to above USD90 a barrel in September following widespread bets of supply and demand imbalance dynamics. US crude inventory reportedly collapsed, OPEC cut supply and Russia banned diesel exports. As such, 10yr US Treasury climbed by 47bps MoM ending the month at the year high of 4.57% which led to 10yr US Treasury price dropped -3.36% MoM.

Meanwhile, China’s equity market was down -2.32% MoM (CSI 300 Index) led by the property market troubles and foreign outflows. Although China’s economic data continues to show pockets of stability, Evergrande reportedly cancelled its creditors meeting and missed its yuan interest obligations. Nevertheless, various policy measures to shore up property demand continues as well as consumer and economic sentiment. Therefore, we maintain our view China’s economy should be bottoming out. Coupled with cautious investors’ positioning and positive seasonal momentum, we maintain our expectations of positive equity market recovery in 4Q especially for Asia including China.

On the local front, the economic backdrop remains encouraging underpinned by supportive monetary policy, moderating inflation and the decent economic growth of 4-5%. As such, we maintain our market optimism on the local equity and bond market.

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 and PRULink Asia Great 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.