October performance signals global slowdown

Since the peak in July, the month of October was the third consecutive month of negative performance in both the global equity and bond market. But the Malaysian market has outperformed, relative to global market with Malaysian equity up +0.7% MoM (FBM100 Index) compared to global equity down -3.07% MoM (MXWD Index); while Malaysian bond marginally down -0.55% MoM (iBoxx ALBI Malaysia Index) compared to global bond down -0.93% (Bloomberg Global-Aggregate Total Return Index). The relative outperformance of the Malaysian market is in line with our earlier preference for local market investment positioning. Malaysian market did better largely due to the relative defensiveness, low valuations, inflation rate remained within target, local policy rate likely kept unchanged or accommodative, economic growth largely driven by consumer spending as well as government’s recent announced positive fiscal initiatives and social inclusive policy. Overall, YTD till Oct 2023, among the asset classes, global equity and local bond are the best performers, delivering positive return of 5.17% and 3.58% respectively.

The challenge facing the global equity and bond market remains essentially market concerns of the US’s hawkish tightening interest rate path, which triggered the 10-year US treasury bond yield to creep to the 2007 high of 5% range before closing the Oct 2023 month at below 4.90%. Both the US economic activity and job market continued to show resiliency. US Q3 real GDP jumped at a 4.9% annual rate, putting YTD average growth at about 3%, above the initial year’s growth rate expectations of 1-2%. Such further heightened market concerns that the current high US interest rate at 5.25-5.50% is likely to stay longer till beyond 2H 2024 with another possible 25bps rate hike in Nov or Dec 2023. Contrary to US resiliency, Euro economic activity weakened back in Oct 2023 after having shown some positive recovery in previous month. Such weaker economic backdrop increased market expectations of ECB turning to cut rates by mid-2024.

Meanwhile, China economic activity continued to show stability with recovery seen more evidently in the manufacturing while consumer or private sector spending activity remains sluggish given the entrenched weak property market sentiment. Recently, positively surprising the market, China government added CNY1-trillion fiscal deficit to 3.8% GDP via central government funding to ensure the economic growth recovery momentum remained intact. To manage financial risks, the government has implemented debt swap of around a CNY1-trillion local government re-financing bond and plan to have large scale debt restructuring plan of the local government debt. China policy makers generally remain supportive of growth and liquidity whether at the monetary or fiscal front.

Given the economic backdrop, overall, we expect the global growth including US to slow for the remaining 2023 as the negative impact of high interest rates and geopolitical risks environment will gradually manifest into corporate earnings and consumer spending. Nevertheless, growth is unlikely to dip into recessionary path given the current divergence in monetary and fiscal policy globally should provide pockets of supportive growth drivers. In addition, while 3Q seasonally tends to be volatile, 4Q seasonally tends to generate positive market momentum. As such, we maintain our market optimism on the local equity and bond market; and expect global equity market to trade higher towards year end. 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.