Weekly Market Review - Insights | AHAM Asset Management Berhad

A BRIEF ON GLOBAL & LOCAL MARKETS, INVESTMENT STRATEGY.
WEEK IN REVIEW | 2 SEPTEMBER – 6 SEPTEMBER 2024

Global & Regional Equities
US markets reversed course last week with weak jobs data and concerns about slowing economic growth weighing on investor sentiment. Technology stocks, which had been leading the market, saw a notable rotation as worries mounted about the sustainability of growth in the sector.

The S&P 500 fell by 4.20%, while the tech-heavy Nasdaq tumbled over 6%. The semiconductor industry bore the brunt of the selldown fuelled by worries surrounding the payoff of artificial intelligence (AI) investments, alongside a tepid recovery in other tech segments such as PCs and mobile phones.

Nonfarm payrolls expanded by 142,000 in August, a modest improvement from July’s 89,000 increase, but still below the consensus forecast of 161,000. Meanwhile, the unemployment rate ticked down to 4.2%, in line with expectations.

The job market faced additional pressure from a larger-than-expected drop in job openings, as shown in the Job Openings and Labour Turnover Survey (JOLTS) from the US Labour Department. In July, there were 1.07 open positions for every unemployed person, the lowest ratio since May 2021, down from 1.16 in June.

The weakness extended into the US manufacturing sector, where the ISM Manufacturing PMI registered 47.2, falling short of market expectations of 47.5. In contrast, the US service sector remained more resilient, with the ISM Services PMI inching up to 51.5 in August from 51.4 in July, slightly above the forecast of 51.1. The 50-point threshold separates expansion from contraction.

The US 10-year Treasury yield declined by 20 bps, ending the week at 3.70%, reflecting rising concerns over economic growth. Attention now shifts to the upcoming consumer price index (CPI) inflation data, which will be pivotal in determining the US Federal Reserve’s next move.

Bond markets are currently pricing in a two-thirds chance of a 25 bps rate cut at the Fed’s upcoming FOMC meeting, although the magnitude of the cut could be influenced by the inflation as well as labour data.

In Asia, regional markets mirrored the declines seen stateside with the MSCI Asia ex-Japan index falling by 2.30%. Tech-heavy markets like South Korea and Taiwan were the largest decliners, with their benchmark indices down by 3.70% and 4.90% respectively.

On a brighter note, ASEAN markets have been attracting inflows, as they are perceived to be more defensive. Countries such as India and Indonesia, with their strong domestic consumer bases, are seen as better positioned to weather market volatility.

Thailand was a standout performer last week, with the benchmark index surging 5.20% on the back of growing political stability following the appointment of the new Prime Minister. Additionally, policy announcements, including the establishment of a fund by the Ministry of Finance known as "Vayuphak" with a size of over 150 billion Thai baht could help buoy markets.

Media reports also indicated that Thailand’s new government is considering plans to legalise casinos, which could provide a boost to the tourism sector.

In terms of portfolio positioning, we are maintaining cash levels between 5% and 10%, while shifting allocations from North Asia to ASEAN markets. Our sector exposure includes financials, healthcare and consumer staples.
Updates on Malaysia
Back home, the benchmark KLCI index declined by 1.5% last week tracking regional weakness. YTL Corporation Bhd was the largest decliner following news that the Malaysian Anti-Corruption Commission (MACC) is investigating YTL Communications Sdn Bhd over the RM4.07 billion 1BestariNet project, according to The Edge. Additionally, Petroliam Nasional Bhd (Petronas) reported lower net profits for 1Q’2024, further weighing on market sentiment.

From a sectoral perspective, the technology sector was the largest drag, with year-to-date returns falling into negative territory. In contrast, the healthcare sector emerged as the top performer, buoyed by IHH Healthcare’s (IHH) announcement of its acquisition proposal for local private hospital chain Island Hospital Sdn Bhd (IHSB). Foreign fund flows continued its positive momentum, registering inflows of USD 170 million last week.

This week also saw the initial public offering (IPO) of 99 Speed Mart Holdings. The IPO, listed at RM1.65, was up 15% at RM1.90 at the time of writing. According to The Edge, the IPO marked Malaysia’s largest in seven years, raising a total of RM2.36 billion and was oversubscribed by 3.04 times. We are positive on the prospects of the company and will add to our existing positions for our domestic funds.

On portfolio action, we are maintaining cash levels between 5-15%, with no other major trades executed last week.
Fixed Income Updates & Positioning
Asian credit spreads widened last week, driven by lower rates and weaker technicals amid heavier new bond supply. Asian investment-grade (IG) spreads increased by 5 basis points, while the high-yield (HY) segment saw a more significant sell-off, widening by 20 basis points.

The APAC region experienced robust supply, hitting USD 17 billion, which accounts for 8% of total supply this year. Notable issuances we participated in include HSBC AT1 USD bonds, Meiji Yasuda Life Insurance Co. USD bonds, and QBE Insurance in AUD terms. These issuances saw strong demand, with a bid-to-cover ratio ranging from 3 to 7 times, and they performed well in the secondary market, with prices rising by 0.50 to 2 points.

In the secondary market, we continued to take profits on previous new issuances that have delivered strong returns, such as HSBC Tier-2 bonds, ANZ Tier-2 bonds, and Cathay Life USD bonds. Proceeds were mainly reinvested into newer issuances trading at more attractive levels, such as those from TotalEnergies and PLN.

On the ratings front, there was notable action following the results season, particularly among Chinese issuers. Moody’s upgraded JD.com to A3 with a stable outlook, and upgraded Meituan to Baa2, maintaining a positive outlook. Additionally, S&P revised Xiaomi’s credit outlook to positive, citing resilient performance in its core segments. While credit spreads on these names initially tightened, these gains were later erased due to broader market weakness.

Conversely, Hong Kong property developer Hysan was downgraded by Moody’s to Baa2, as expected, reflecting the ongoing challenges in the Hong Kong property market.
Back home, government bond yields declined last week, primarily tracking the movement of US Treasuries. However, the overall impact was limited due to profit-taking activities. Bonds with maturities of 5 to 10 years were the most actively traded, with yields dropping by 2 to 3 bps.

The portfolio’s average duration currently stands at 4 to 4.5 years, with plans to further extend duration in the near term to capitalise on market opportunities.

Back home, government bond yields declined last week, primarily tracking the movement of US Treasuries. However, the overall impact was limited due to profit-taking activities. Bonds with maturities of 5 to 10 years were the most actively traded, with yields dropping by 2 to 3 basis points (bps).

As of last Friday, the 3-year Malaysia Government Securities (MGS) yield stood at 3.34%, the 5-year MGS at 3.68%, and the 10-year MGS at 3.74%. Bonds with maturities of 15 years and above saw less trading activity, with yields remaining largely unchanged. The 30-year MGS closed at 4.19%.

There were no government bond auctions last week, but today (Monday, 9 September), we expect the reopening of the 20-year Malaysian Government Investment Issue (MGII) benchmark, with a total issue size of RM5 billion. Of this, RM3 billion will be available to the public, while RM2 billion will be issued via private placement. We anticipate solid demand, with a likely bid-to-cover (BTC) ratio around two times.

In the corporate bond market, AmIslamic issued RM200 million in sukuk via private placement, priced at 3.75% with a 40-basis-point spread over the MGS. We participated in this issuance for our short-duration fund.

Last week’s Monetary Policy Committee (MPC) meeting saw Bank Negara Malaysia (BNM) maintain the Overnight Policy Rate (OPR) at 3.00%. The MPC viewed the current OPR level as supportive of economic growth and consistent with their outlook on inflation and growth prospects.

Looking ahead, the MPC sees growth supported by factors such as the global tech upcycle, robust tourist spending, and the accelerated rollout of investment projects. However, they flagged external demand as a key downside risk to economic growth.

On the inflation front, BNM continues to project Consumer Price Index (CPI) growth between 2% and 3.5%. However, they explicitly mentioned that overall inflation is unlikely to exceed 3% this year, as price pressures remain muted following the diesel subsidy rationalisation. With BNM maintaining a balanced and neutral outlook, we expect the OPR to remain unchanged at 3% through 4Q’2024 and into 1Q’2025. The next, and final, MPC meeting for this year is scheduled for 6 November 2024.

On portfolio actions, we continued to take profits on corporate bonds with tight credit spreads. The cash generated from these sales will be reinvested in upcoming primary issuances. Our portfolio duration remains within the 5.5 to 6.5-year range, with cash levels between 3-5%.

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