We take an in-depth look at the market in August 2023.
Contents
Market Outlook
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. 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.
Starting in August, we will make adjustments to our portfolios to continue reflecting our optimistic outlook for China. In our Conventional portfolios, we will introduce a 5% allocation to Principal Greater China Equity Fund – MYR. To accommodate this change, we will decrease the weightage of AmanahRaya Unit Trust and United-i ESG Series-High Quality Sukuk MYR by 2.5% each. In our Shariah portfolios, we will increase the allocation to RHB Shariah China Focus MYR by 5% and simultaneously reduce the weightage of AmanahRaya Syariah Trust and United-i ESG Series-High Quality Sukuk MYR by 2.5% each.
Equity
Following six consecutive months of decline, FBMKLCI experienced a noteworthy rally in July, surging by 6.01% MoM to close at 1,459.43 points. Looking at the trading participants for the month, foreign investors were the net buyers, buying MYR1,414.48 million worth of shares. Local institutions and local retailers were the net sellers, selling MYR857.74 million and MYR556.63 million worth of shares, respectively. For year-to-date (YTD), foreign investors and local retailers were the net sellers, selling MYR2,777.82 million and MYR93.48 million worth of shares, while the local institutions were net buyers, buying MYR2,871.32 million worth of shares.
In July, all sectors showed positive gains. Property, Industrial, and Energy were the top performing sectors, rising by 12.02%, 7.51% and 7.24% MoM, respectively. Laggards were REITS, Transport, and Telco, rising marginally by 0.01%, 1.26% and 1.64% MoM, respectively
Bond
In July, the yield for the Malaysian Government Securities (MGS) for the 3-year, 5-year, 7-year and 10-year changed marginally by -1bps, 0bps, 3bps and -1bps, closing at 3.49%, 3.60%, 3.76% and 3.84% respectively.
Commodities
Global commodity markets wrapped up the month of July on a positive note, supported by solid demand prospects and tight supply. Nymex (WTI) crude oil price advanced by +15.80% MoM in July, closing at USD81.80/barrel. Brent oil price trended higher, +14.23% MoM to USD85.56/barrel. Crude palm oil traded +1.09% MoM to close at MYR3,792.00/MT in July. Gold price gained +2.13% MoM to close at USD1,970.50/Oz in July. Currency wise, MYR strengthened +3.54% against USD primarily driven by a weaker USD Index (DXY) and the Yuan’s strengthening. The Yuan’s rise was attributed to intervention measures by the state bank and positive sentiments surrounding the government’s stimulus commitments
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