Weekly Market Review
A Brief on Global & Local Markets, Investment Strategy.
Week in Review | 13 November - 17 November 2023
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On the domestic front, the benchmark KLCI advanced by 1.10% mirroring gains in regional markets. Notably, foreign buying persisted for the second consecutive week in November.
In significant news, the Ministry of Investment, Trade, and Industry (MITI) unveiled plans to enforce a 2-year moratorium on new manufacturing licenses for the iron and steel industry. This development acts as a catalyst for existing steel players with reduced competition and lower supply. We have exposure to this sector through Hiap Tek Bhd.
Glove producer Kossan Bhd reported a profitable quarter, marking a turnaround after 3 consecutive quarters of losses. The results surpassed expectations and followed Hartalega's positive earnings in the preceding week. Both glove makers are seeing improved sales volume which are expected to enhance utilisation rates and offset declines in average selling prices (ASP). Our exposure in this sector ranges from 3% to 8%.
In terms of portfolio action, we added positions in telcos while trimming some plantation and glove names. Conventional funds maintain a cash level of 10%, whereas Shariah-compliant funds hold cash levels ranging from 15% to 25%.
It was another strong week for Asian credits as we saw continued spread compression. Beta compression was a key theme last week as we saw BBB names outperforming on the investment grade (IG) index. This was contributed by China names such as Lenovo, Xiaomi and Meituan Group that saw tightening of about 15 – 20 bps w-o-w. As of 16 November 2023, the J.P. Morgan Asia Credit (JACI) Index saw a positive return of 1.6% in 1-month period.
Zooming into China, there were stimulus talks by the People’s Bank of China (PBOC) as they will be providing 1 trillion RMB in low-cost financing to aid China’s housing market. PBOC have also reached out to a handful of lenders to cap interest rate on interbank funding. In other news, China Huarong AMC will rebrand as “China Citic Financial Asset Management” as they acquired 5.01% of Citic Limited last week. The rebranding announcement indicates their strong connection with Citic Group. China Huarong AMC bonds jumped 3 – 6 points following the news before settling at 2 – 5 points higher.
In Macau, rating agencies have upwardly revised on some Macau gaming companies as Macau gross gaming revenue (GGR) recovered sooner than expected. In the AT1 space, we saw new deals from Barclays and Santander Bank after UBS Bank’s success. In terms of pricing, they both printed sub-10%.
On primary issuances, there were new issuances of USD3.01 billion from the APAC region. The largest contributor to the new issuances was Toyota Group.
On portfolio action, we have participated in Barclay Bank’s new AT1 and extended some duration through long-end treasury. We also took profits from names like Dah Sing Bank.
Back home, we saw the Malaysian Government Securities (MGS) curve remained range bound on the backs of volatile treasury. The MGS yield shifted lower towards the end of the week, declining 3 – 8 bps w-o-w. The benchmark 10-year MGS closed at 3.84% whilst the 30-year MGS closed at 4.30%.
There was a 3-year GII auction last week with an issuance size of RM5 billion that drew weak demand with a bid-to-cover ratio of only 1.5x - the lowest of all 3 - 5 years governments bonds auctions year to date. We believe the low bid-to-cover ratio is due to lesser demand and investors being more cautious as we enter the year-end. The average yield for this auction was 3.62%.
Last week, it was announced that Malaysia’s Q3 gross domestic product (GDP) printed at 3.3% y-o-y compared to Q2’s GDP of 2.9%. On a q-o-q basis, our economy expanded by 2.6% supported by the private consumption that expanded 4.6% y-o-y. Government spending also increased by 5.8% y-o-y due to higher spending in supplies and services. In terms of exports, Malaysia has declined by 12% compared to Q2’s 9% contraction. For 2023, GDP growth is projected to be 4% – 4.3%. The 9-month 2023 real GDP is currently averaged at 3.9%.
Our local fixed income portfolios focused on trading govvies and buying corporate bonds in the secondary market, while we wait for primary issuances of CIMB Islamic, UEM Olive, Plus Bhd and Bank Pembangunan. Duration of our funds are averaging between 5 – 6 years with cash levels between 5% - 14%.
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