Weekly Market Review
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A BRIEF ON GLOBAL & LOCAL MARKETS, INVESTMENT STRATEGY.
WEEK IN REVIEW | 6 – 10 MAY 2024

  • Global & Regional Equities

    It was a light week for data releases, yet US equities continued their upward trajectory. The S&P 500 index climbed 1.90%, extending the positive trend following the dovish tone from the US Federal Reserve and softer labor data from the prior week.

    According to the US Labor Department, jobless claims reached their highest level in eight months, totaling 231,000 for the week ending May 4th, surpassing market estimates of 212,000.

    In addition, consumer sentiment showed signs of weakening, as indicated by the University of Michigan Survey Consumers’ sentiment index for May. The initial reading of 67.4 marked a decline from April's 77.2.

    Along with the downbeat sentiment, the survey also showed a rise in inflation expectations by consumers. The one-year inflation outlook jumped to 3.50%, up 0.3 percentage point from a month ago to the highest level since November.

    US Treasuries were flat with the benchmark 10-Year yield settling unchanged at 4.50% for the week. Looking ahead, investors are keenly awaiting the release of producer and consumer price readings, which would provide insights into inflation levels and the Fed’s interest rate trajectory.

    In Asia, the MSCI Asia ex-Japan index rose 1.10% led by notable gains in Hong Kong. The Hang Seng index surged 2.60% following reports that that China is considering exempting individual investors from paying dividend taxes on Hong Kong stocks bought through the Stock Connect.

    Currently, investors face a 20% tax on dividends from Hong Kong stocks acquired via the link connecting Shanghai and Shenzhen. If the proposal materialises, it could significantly bolster sentiment and spur southbound flows.

    Additionally, such a move might help narrow the valuation gap between A-shares and H-shares, particularly since A-shares typically trade at a premium. This could trigger a rerating of high-dividend yield shares in Hong Kong.

    On portfolio action, we capitalised on this potential shift by acquiring Hong Kong-listed banks operating in China.

  • Updates on Malaysia

    On the local front, the benchmark KLCI saw a modest increase of 0.70%, breaking above the 1600-point mark for the first time in over two years. Similarly, the broader FBM100 index experienced a slight gain of 0.9%. Year to date, the KLCI index and FBM100 index have delivered gains of 10% and 11.5% respectively.

    Sector-wise, the banking and utilities sectors led gains propelled by foreign inflows, while the telecommunications and plantations sectors lagged. Foreign buying extended for the third consecutive week, while local retail and institutional investors were net sellers. Despite foreign inflows remaining slightly negative at RM 900 million YTD, this was a marked improvement compared to previous years.

    In news flow, the new Johor-Singapore Special Economic Zone (JS-SEZ) is expected to be developed in Iskandar Puteri and Pengerang region. Once set-up, the JS-SEZ could act as a competitive hub in attracting fresh foreign direct investment (FDI) from global multinational companies (MNCs). Additionally, InNature Bhd announced to acquire the operator of Burger & Lobster restaurants for RM21.25 million in a related-party deal as part of a diversification plan.

    On politics, Pakatan Harapan retained its seat in the Kuala Kubu Baharu by-election with a 3,869 vote majority over Perikatan Nasional. The election result helps reaffirm political stability and could instill greater confidence in the unity government’s ability in executing policies and reforms such as subsidy rationalisation measures.

    On portfolio adjustments, we took the opportunity to lock-in gains by divesting gloves as well as trimming our exposure to property. Cash levels range between 5-6%. We remain constructive on the local market, anticipating a surge in passive inflows over the next two months due to index rebalancing activities. Investors will be also taking cues from upcoming results season for insights on market direction.

  • Fixed Income Updates & Positioning

    After a dull start to the month of May, the primary markets came back to life last week with USD 5.9 billion in aggregate price across 11 deals in Asia. It was a record-high number of issuances since January 2024.

    We participated in a few deals across different currencies including Ping An Insurance Overseas (USD), Rajhi AT1 Sukuk (USD), Coca Cola (EUR) and AusNet (AUD). Most deals we participated in were up by the end of the week. Despite the heavy supply, we did not see indigestion in the market. From the credit spreads’ performance point of view, it remained upbeat with Asian investment grade (IG) tightening 4 bps to 79 bps whilst Asian high yield (HY) continued its outperformance, tightening 24 bps to 5.50%.

    In other news, OCBC Bank made a SGD 1.4 billion offer to acquire full stake in Great Eastern. Currently, OCBC has a 88.4% stake in the company. The deal would have immaterial impact on OCBC’s CET 1 ratio. There was also no impact to OCBC and Great Eastern’s bond instruments as well. On that note, OCBC has also launched a new Tier 2 USD deal this week.

    Zooming into the China property space, Country Garden (Cogard) made interest payments for two of its onshore bonds within the grace period after missing the initial payment. These bonds were issued with guarantees from China Bond Insurance Co but were untested until Cogard’s defaults.

    On portfolio action, we switched from AIA USD Perp to AIA Euro paper. We also took profits from notable primary deals like Nestle, Sydney Airports, Porsche and Ping An Insurance Overseas.

    Back home, market sentiments improved last week with trades done mostly seen in the mid part of the curve, 7 – 10-year tenure. This is largely driven by the interest from onshore bank dealers, as well as small clips of buying from foreign flows. Overall, yields were lower by 2 – 4 bps. The 10-year Malaysian Government Securities (MGS) ended at 3.91% whilst 30-year MGS was not traded last week, leaving it unchanged at 4.28%.

    In terms of new issuances, there was a book opening for AAA-rated Petroleum Sarawak bond across three different tenures at RM1.5 billion issuance size. The 3-year was priced at 3.90%, 5-year at 3.93% and 7-year at 4.01%. The credit spreads were quite tight with 3-year at 32 bps, 5-year at 20 bps and 7-year at 17 bps. There was also a sub-debt issuance by RHB Bank 10NC5, rated AA2 amounting to RM500 million. The sub-debt was priced at 4.00% representing credit spreads of 25 bps. We participated in the Petroleum Sarawak bond only.

    On government issuances, there will be a new 20-year MGS benchmark auction with issuance size of RM5 billion. Of this, RM2 billion will be privately placed by Bank Negara Malaysia (BNM). This auction will be an indicative of current market demand for the longer-tenured bonds, especially given how flat the long-end curve is now.

    In the month of April, there was smaller foreign buying with only RM1.1 billion of inflow for MGS and GII. This was the second consecutive month of net inflow. However, YTD foreign flows to local bond market remains negative at -RM700 million. As of end April, foreign holdings in MGS stood at 32.8%, slightly lower than end of March at 33.2%, mainly due to the larger outstanding base of MGS. There was BNM’s Monetary Policy Meeting (MPC) last week, where the overnight policy rate (OPR) is maintained at 3.00%. 

    The key focus was on the MPC statement to see if there are any changes to BNM’s stance, given the upside in growth and inflation due to new measures like the Employee Provident Fund (EPF) Account 3, civil servant wage hike and the soon-to-be announced subsidy rationalisation. The MPC statement was largely in line with their statement in March but it’s interesting to see that BNM is highlighting the potential upside risk to growth in Q1’2024, mainly driven by domestic expenditure and turn around in exports. On the inflation front, given that details on removal of subsidies remained limited, BNM is keeping inflation forecast wide, between 2.00% - 3.50%. Overall, we feel that MPC gave a neutral stance and believe OPR will remain unchanged.

    On portfolio action, we remain nimble and are gradually collecting secondary corporate bonds with better valuations. At the same time, we continue to take profit from corporate bonds holdings with tight credit spread and to switch into new primary issuances. Some names we’re looking at are Pengurusan Air SPV, PROTON and Benih Restu (SPV of Genting Plantations). Duration of local funds ranges between 5.7 – 6.3 years with cash levels around 5%.


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TENG CHEE WAI

Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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