Market and Investment

Market Sentiments Locally and Beyond

Global market performance again was mixed in July. The mixed performance was due to mixed economic data release and there was a slew of important positive stimulus policy announcements made locally and externally.

Locally In July, local equity market was up strong (FBM 100 Index +5.58% MoM) offsetting the loss (-0.26% YTD), while local bond market traded sideways (Markit iBoxx ALBI Malaysia Non-Govt TRI +0.19% MoM) but still deliver decent return (+5.48% YTD). The strong local equity market recovery was due to weaker USD reigniting foreign inflows, better industrial production and loans growth despite softer external trade, and expectations of China’s economy downtrend bottoming. Meanwhile, BNM also maintained policy rate unchanged at 3%, removing concerns on inflation risk given June inflation rate has eased to 2.4% YoY, within the full-year inflation forecast range of 2.8-3.8%. Importantly, the Unity government announced 2 critical policies which are a) the 10-year economic blueprint Madani Economic Narrative (MEN) to strengthen the economy at a sustainable and resilient pace, anchoring on global benchmarks; and b) National Energy Transition Roadmap (NETR) to help the transition towards a green economy to meet the country’s 2050 commitments of net zero GHG emissions and 70% renewable energy capacity mix. This is a good start, but effective execution will remain key to achieving the ambitious targets. Nevertheless, market sentiment is expected to improve when more specific policies are rolled out in the coming months as well as fund allocation in the upcoming Budget 2024.

Externally in July, global equity market continued to climb higher (MSCI ACWI Index +3.55% MoM) but led largely by the Asia market (MSCI Asia Ex. Japan Index +5.68%) while developed countries’ bond market traded lower (10yr US Treasury yield +13bps, 10yr Euro yield +9bps). The latter traded lower as central banks in US and Euro continued with another 25bps interest rate hike to 5.25-5.50% and 3.25-3.5% respectively as inflation rate remains far from the target rate, although trended lower. However, the dovish monetary policy rate guidance, suggesting further rate hikes will be more data dependant, has capped the yields upward shift as well as boosted equity market sentiment. Meanwhile, while the Euro economic momentum continues to stay weak (July Eurozone Composite PMI down to 48.9 vs 49.9 prior), the US economic momentum remains positive (July US Composite PMI down to 52 from 53.2) although mixed and softer. Besides, the positive US economic sentiment in also aided by the positive job market which continues to boost consumer confidence (July conf board consumer confidence up 117 vs 109.7 prior). Therefore, the earlier concerns of US recessionary risk given the unprecedented rate hikes and tighter lending conditions, have largely mellowed to a soft economic landing.

Separately, China’s politburo meeting held in July was market positive as recognising the property market and domestic growth remain weak, the policymakers have pledged to “adjust and optimise property policies timely” to upgrade demand and stabilise property sentiment, as well as announced positive measures that are growth supportive but with a long-term focus. The meeting also called to “activate capital market” and for RMB stability and a “holistic approach to resolve local government debt risks”. The China’s official 5% growth remains on track.

Overall, developed economies are likely to lead the global growth lower with recession risk likely not imminent while Asia, is likely to exhibit healthy growth rates supported by China recovery although less robust. Therefore, coupled with the current positive local economic fundamental backdrop and weaker dollar expectations backdrop, we continue to remain positive on both the local bond and equity market, putting aside the upcoming state elections. The conclusion of the state elections by August, in which we expect the status quo to be maintained, will see political risks ease.

All in all, we continue to advocate the bond market to continue to perform positively and the balanced/bond funds remain a good risk diversifier instrument 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 and compared to global equities which have performed well relatively. 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.