Global Market Movements in February 2024: An In-depth Analysis
During Feb 2024, there were few key market movements observed in the bond market, artificial intelligence related equities, and China equity market. The first is the further drop in the global bond market (Global aggregate bond price -0.62% MoM, -2.62% YTD) led by higher yields in developed market (10 US Treasury yield +33bps YTD). With the US’s resilient economic growth (4Q GDP at 3.2% YoY vs 3.3% survey), strong job numbers (change in nonfarm payrolls +353k vs 170k survey), and sticky inflation (US Jan CPI 3.1% YoY vs 2.9% survey), coupled with rhetoric policymakers’ pushbacks of aggressive rate cuts, the bond market’s expectations of US and Eurozone central bankers’ rate cuts are now more closely aligned. By the end of Feb, the US and Euro bond market have priced in about 76bps and 85bps rate cut by Dec 2024 to 4.56% and 3.06% respectively, with rate cuts starting in June 2024. This is a far downward shift from earlier Jan expectations of 1.48% cut, starting in May 2024. Nevertheless, the Malaysian bond market was resilient (Malaysia Markit bond index +0.66% YTD) with a mixed bond yield curve shift where the 7-10yr segment yields up 8-10bps while the >15yr segment yields down 1-5bps. This is because while the Malaysian bond market was dampened in tandem with global bond market, the Malaysian bond market was supported by the low Jan inflation rate at 1.5% YoY and the disappointing 4Q GDP growth at 3% YoY (3Q GDP 3.3% vs 2022 GDP 8.7%) which resulted in full-year 2023 growth of only 3.7% YoY. Having said that, the upside to the local bond market remains limited given 2024 economic growth expected to gain stronger at 4% to 5% YoY supported by resilient household spending and expected recovery in exports growth, benefiting from China economy recovery; as well as upside risk to inflation stemming from subsidy rationalisation.
Led by AI related stocks following Nvidia’s impressive results and strong earnings guidance as well as largely better-than-expected 4Q US corporate earnings, the US and Euro equity markets continued to climb higher (US equity +3.5% MoM, US IT equity +3.8%, Euro equity +4.6%). Despite the expensive market valuations and interest rate cut expectations being wound down, such positive equity market sentiment was also sustained by the recent data release confirming US economy on soft-landing path.
Lastly, the China market rallied the most in a month (CSI 300 +8.35% MoM) since Jan 2023 after having been on a decline since the 2020 peak. The significant rally was triggered post the new reform-minded CSRC chairman took office as policies were seen rolling out restricting short sale, shrinking the quantitative strategy that contributed to market turmoil. Meanwhile, the market fundamentals were supported by the positive surprise 25bps 5-year Loan Prime rate cut further lowering mortgage rates, the steady overall economic activity momentum, the encouraging Jan credit stemming from household loans, the better-than-expected tourism revenue and the national team’s buying of key A share ETFs sourcing from stabilisation fund which rumoured to amount to USD278bn. Nevertheless, market investors remain cautiously optimistic about more details to be revealed on the country’s targets (growth, fiscal deficit, inflation et) with the start of Two Sessions (National People’s Congress and Chinese People’s Politburo Consultative Conference) starting 5th March and Premier Xi’s guidance on economic and industry policies.
Likewise in tandem with the global equities, the Malaysian equity market also did well (FBM100 +2.2% MoM, 6.4% YTD). Overall, we maintain our positive outlook on the Malaysian equity market, underpinned by strong fundamental impetus supporting better economic growth in 2024 while BNM monetary policy likely to remain growth supportive despite bond yields could gyrate slightly higher in near term on back-up in inflation to 2 to 2.5% range. Key investment risks for 2024 could arise from inefficiency of local policy execution, sticky inflation rate, and US higher rates for longer.
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.
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.