The Fed raised the Fed funds rate (FFR) by 25bps to 5.25%-5.50% in July’s FOMC meeting. However, Fed Chair Powell did not give a clear indication that the additional rate hike projected in the June median dot plot would be delivered. He stressed that any future rate decisions would depend on the data received before the September meeting. This data includes two CPI reports, two labour market reports, the Q2 Employment Cost Index (ECI), and core PCE inflation. While investors are divided on the outlook ahead, we anticipate that we are approaching the end of the rate hike cycle and that a pause is likely imminent. Separately, the ECB increased interest rates by 25bps to 3.75% due to persistent euro area inflation. However, it remains open to future rate decisions and hinted at a potential pause in monetary tightening.
The Bank of Japan (BoJ) maintained its key short-term interest rate at -0.1% and the 10-year JGB yields around 0% at its July’s meeting but surprised investors by adopting a more flexible yield curve control (YCC) policy and weakening its commitment to defending a cap on long-term interest rates. This shift in stance comes in response to increasing indications of creeping inflation and the potential side-effects of prolonged easing. Another noteworthy development in the Asian market in July involves the commitment of the Chinese Politburo to implement stimulus measures aimed at boosting domestic consumption following a sluggish recovery post-reopening. Specifically, the government will boost demand for autos, electronics, household products, and promote tourism as well as the property sector. Chinese equities rallied following the indication of a pro-growth stance. We view this as positive and timely as it will boost sentiment and restore confidence among investors.
Back home, after experiencing several months of foreign net outflows in the Malaysian equity market, there has been a notable change in July, with foreigners making a return and buying over RM1.4b worth of Malaysia equities. This influx of foreign investment has had a positive impact on the ringgit’s value against the dollar (the ringgit gained 3.54% against the dollar) and market performance (FBMKLCI advanced 6.01% in July), indicating some excitement and confidence among investors irrespective of the uncertainties ahead of the state elections in August. Of course, investors will continue to closely monitor the development of the state election, but we believe it is unlikely to see any changes occurring in the state government.
Where do opportunities lie?
Our recommendation to increase position in China/Asia and Malaysia last month was timely as these markets concluded July on a positive note. We continue to like China/Asia and Malaysia given their inexpensive valuations, under-positioning and better earnings prospects. Furthermore, China’s anticipated recovery (positive signals from Chinese Politburo) will eventually benefit Malaysia market and the local currency.
Figure 1: Market Valuation – HK and Malaysia seem to be very cheap
Source: Bloomberg, compiled by PCM, 21 July 2023
The market currently presents several opportunities for investors. However, it is crucial to exercise caution and carefully select investment options to ensure the best risk-adjusted returns. By taking a vigilant and discerning approach, investors can potentially reap the benefits of the current market opportunities while minimising risks.
Phillip Capital Malaysia offers a comprehensive suite of financial services including managed accounts and unit trusts, that may suit your investment preferences and financial goals. We also offer both conventional and Shariah-compliant options to cater to the needs of all investors.
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Disclaimer:
The information contained herein does not constitute an offer, invitation or solicitation to invest in Phillip Capital Management Sdn Bhd (“PCM”). This article has been reviewed and endorsed by the Executive Director (ED) of PCM. This article has not been reviewed by The Securities Commission Malaysia (SC). No part of this document may be circulated or reproduced without prior permission of PCM. This is not a collective investment scheme / unit trust fund. Any investment product or service offered by PCM is not obligations of, deposits in or guaranteed by PCM. Past performance is not necessarily indicative of future returns. Investments are subject to investment risks, including the possible loss of the principal amount invested. Investors should note that the value of the investment may rise as well as decline. If investors are in any doubt about any feature or nature of the investment, they should consult PCM to obtain further information including on the fees and charges involved before investing or seek other professional advice for their specific investment needs or financial situations. Whilst we have taken all reasonable care to ensure that the information contained in this publication is accurate, it does not guarantee the accuracy or completeness of this publication. Any information, opinion and views contained herein are subject to change without notice. We have not given any consideration to and have not made any investigation on your investment objectives, financial situation or your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any persons acting on such information and advice.