The MSCI Asia Pacific Ex-Japan Index (+1.6%) greatly underperformed the MSCI World Index (+4.2%) in May, mainly due to US market vigor defying the old adage of “Sell in May and go way”. Taiwan (+3.8%) was the regional winner as tech exports boomed, boosting GDP growth to 6.6% YoY in 1Q24. Hong Kong (+1.8%) came in second, continuing the strong momentum it had since April along with Singapore (+1.3%) which also enjoyed sustained moderate market momentum. Philippines (-5.0%) tumbled further, being the region’s worst performer for 2 months back-to-back as the nation’s peso tests all-time-lows. Indonesia (-3.6%) retreats from all-time-highs, plagued by a plummeting rupiah and general decline in large-cap valuations. South Korea (-2.1%) also followed the trend of consecutive losing months despite cooling inflation and semiconductor export growth (see Exhibit 1).
Exhibit 1: Market Performance May 2024
Source: Bloomberg, PCM, 31 May 2024
President Biden announced tariffs on $18bn worth of Chinese imports, including EVs, semiconductors, and medical products. Separately, China has undertaken a series of initiatives to bolster its economy. China’s biggest cities including Shanghai, Shenzhen and Guangzhou eased requirements for home downpayments and mortgages, following through on the central government’s support for the embattled property sector. Additionally, China has set up its third planned state-backed investment fund to boost its semiconductor industry, with a registered capital of 344 billion yuan ($47.5 billion).
The domestic market continued its positive momentum in May, gaining +1.3% MoM and closing at 1,596.68. Similarly, the Small Cap Index posted a positive return of +4.1%, while the Mid 70 Index gained +5.2%. Sector-wise, the top performers were Technology, Construction, and Property, with gains of +11.5%, +9.3%, and +6.8% MoM, respectively. Laggards were Plantation, Energy, and Telco, declining by -4.9%, -0.9%, and -0.8% MoM, respectively. In terms of fund flow, foreign investors turned net buyer in May with buying value of RM1,487.5m. This reversed some of the earlier outflows, reducing the YTD foreign outflows to a total of RM761.8m.
Several sectors generated good growth in 1Q24. These include Auto, Construction, Conglomerates, Consumer Staples, REITs, Healthcare, Real Estate, Telecoms, Transport, Oil Services, and Utilities. In addition, Industrial Goods, Technology and Consumer Discretionary are turning around from relatively low bases, while Plantations were below expectation. Separately, the Cabinet has agreed to implement targeted subsidies, which will begin with diesel, saving RM4bn annually. This signals the MADANI government’s commitment to economic reforms which are generally positively viewed by the stock market. We also see potential boost in consumer retail spending following the recent implementation of EPF’s Account 3. Overall, we remain positive about the Malaysian market, which is well-supported by strong earnings growth and favourable policy conditions.
Strategy for the month
The U.S. market has been reaching new highs since May 2024, driven by renewed hopes for early rate cuts following the latest inflation report. The market is now expecting the first rate cut in September, a view we agree with. China’s market remains attractive, buoyed by the government’s commitment to supporting the property sector. There is also potential for a mean revaluation trade, given China’s ultra-depressed valuations. The recent correction presents a trading opportunity. Investors are closely monitoring the latest developments in the Hamas-Israeli conflict, Iran-Israel tension, the Russia-Ukraine conflict, global inflation trends, US 10-year bond yields, global growth projections, worldwide interest rate trajectories, as well as major elections (in France, UK, US, etc).
As such, we remain cautiously optimistic on global equities, with a preference for the Hong Kong/China market due to appealing valuations and policy stimulus. Additionally, the US market is favoured for its strong earnings quality, presenting opportunities for investment during any potential pullback. In Malaysia, we continue to like large-cap stocks and remain bullish on selected small-cap stocks. Sector-wise, we favour the Construction sector, supported by project rollouts and data centre investments. Additionally, we favour the Technology sector, seeing indications of the semi down-cycle stabilising, along with companies poised to benefit from the current AI excitement. Conversely, we continue to hold our underweight stance in Telco and Plantation sectors (see Exhibit 2).
Exhibit 2: PCM’s monthly strategy snapshot
Source: PCM, 31 May 2024
Exhibit 3: Selected Market Indices Valuations
Source: Bloomberg, PCM, 31 May 2024
Phillip Capital Malaysia and our offerings
We reaffirm our belief that there are still opportunities in the market, and we maintain a discerning approach in choosing high-quality stocks for our portfolio. 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.
A noteworthy avenue for investors seeking diversification in their portfolio is through PhillipCapital Malaysia. PhillipCapital Malaysia offers multiple private mandate services managed by professional fund managers. By leveraging PhillipCapital Malaysia’s private mandate services, investors can enhance their resiliency, optimise portfolio performance, and navigate the complexities of the market with confidence.
We also offer both conventional and Shariah-compliant options to cater to the needs of all investors. For Malaysia’s mandates, we like:
- PMART/PMA Dividend Enhanced and/or PMART/PMA Dividend Enhanced ESG
Our PMART Dividend Enhanced and PMA Dividend Enhanced is an income-driven portfolio focused on high dividend-yielding equities. We apply the Dog of the Dow approach, screen and select top market cap stocks to minimise risk and ensure consistent performance. The portfolio is an equal weighting portfolio which reduces concentration risk and provides similar exposure to all clients, both initially and after rebalancing. We offer both conventional and Shariah investment options to cater to the diverse needs of our investors. Click here to learn more. We recently also introduced PMART/PMA Dividend Enhanced ESG Mandate as we remain dedicated to investing in ESG stocks given their stronger valuation and profitability.
- PMART/PMA ESG
Phillip Capital Malaysia offers discretionary portfolio that invests in stocks with high ESG ratings from the F4GBM and F4GBMS Indices, namely PMART and PMA ESG. There are both conventional and Shariah options available. To explore the companies in which both Conventional and Shariah ESG mandates invest, you can refer to the provided link.
- PMART/PMA Blue Chip and Opportunity
Our Blue-Chip portfolios primarily allocate our investments towards companies with large market capitalisations, while the Opportunity portfolios predominantly invest in companies with smaller market capitalisations. We also offer both conventional and Shariah-compliant options to cater to the needs of all investors.
Please click on the link to learn more or email us at cse.my@phillipcapital.com.my if you require any further information.
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.
