E-Market Outlook 2020 Quarter 1 - In alliance with - Principal Asset Management
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Principal e-Market Outlook - 2020 Quarter 1
e-Market Outlook
2020 Quarter 1
In alliance with
Quarterly commentary | Summary of Market Outlook and Strategy 1
Principal e-Market Outlook - 2020 Quarter 1
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Quarterly Commentary
01 02 03 04 05
Summary of Market Outlook Global Outlook Asia-Pacific Outlook ASEAN Outlook Strategy Going Forward
and Strategy
Market Outlook
2020Q1 Market Outlook on Equity 2020Q1 Market Outlook on 2020Q1 Market Outlook on
by Patrick Chang Fixed Income by Jesse Liew Global Sukuk by Mohd Fadzil
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Quarterly commentary | Summary of Market Outlook and Strategy 2
Principal e-Market Outlook - 2020 Quarter 1
Quarterly Commentary
First Quarter Market Review
01 Summary of Market Outlook and Strategy
As we move into 2020, we continue to see pockets of opportunities in the equity market in the 1st half. This is on the back of
supportive central banks policies, stabilising earnings estimate, and some progressive outcome coming from US and China
trade tension.
Market Review – 2019 was a good year for all asset classes
Asset Class Currency 3-mth 1-mth 2019 2018 2017 2016 2015 2014 2013 2012 2011
Equities
MSCI World USD 8.2% 2.9% 25.2% -10.4% 20.1% 5.3% -2.7% 2.9% 24.1% 13.2% -7.6%
S&P 500 USD 8.5% 2.9% 28.9% -6.2% 19.4% 9.5% -0.7% 11.4% 29.6% 13.4% 0.0%
Stoxx 600-Europe EUR 5.8% 2.1% 23.2% -13.2% 7.7% -1.2% 6.8% 4.4% 17.4% 14.4% -11.3%
Nikkei 225 JPY 8.7% 1.6% 18.2% -12.1% 19.1% 0.4% 9.1% 7.1% 56.7% 22.9% -17.3%
MSCI Emerging USD 11.4% 7.2% 15.4% -16.6% 34.3% 8.6% -17.0% -4.6% -5.0% 15.1% -20.4%
MSCI Asia Pac ex-Japan USD 10.1% 5.6% 15.8% -16.2% 33.5% 3.7% -12.0% -0.2% 0.5% 18.6% -18.0%
ASEAN USD 3.7% 3.7% 5.0% -8.5% 29.1% 5.9% -21.9% 3.2% -6.6% 16.0% -6.1%
H-Shares HKD 9.5% 8.4% 10.3% -13.5% 24.6% -2.8% -19.4% 10.8% -5.4% 15.1% -21.7%
Shanghai Composite CNY 5.0% 6.2% 22.3% -24.6% 6.6% -12.3% 9.4% 52.9% -6.7% 3.2% -21.7%
KOSPI-Korea KRW 6.5% 5.3% 7.7% -17.3% 21.8% 3.3% 2.4% -4.8% 0.7% 9.4% -11.0%
SENSEX-India INR 6.7% 1.1% 14.4% 5.9% 27.9% 1.9% -5.0% 29.9% 9.0% 25.7% -24.6%
TAIEX-Taiwan TWD 10.8% 4.4% 23.3% -8.6% 15.0% 11.0% -10.4% 8.1% 11.8% 8.9% -21.2%
Straits Times-S'pore SGD 3.3% 0.9% 5.0% -9.8% 18.1% -0.1% -14.3% 6.2% 0.0% 19.7% -17.0%
KLCI-Malaysia MYR 0.3% 1.7% -6.0% -5.9% 9.4% -3.0% -3.9% -5.7% 10.5% 10.3% 0.8%
SET-Thai THB -3.5% -0.7% 1.0% -10.8% 13.7% 19.8% -14.0% 15.3% -6.7% 35.8% -0.7%
Jakarta Comp-Indonesia IDR 2.1% 4.8% 1.7% -2.5% 20.0% 15.3% -12.1% 22.3% -1.0% 12.9% 3.2%
Bonds & FX
Bberg Barclays Global Agg Index USD 0.5% 0.6% 6.8% -1.2% 7.4% 2.1% -3.2% 0.6% -2.6% 4.3% 5.6%
JPM Asia Credit Index-Core USD 0.9% 0.4% 13.0% -1.4% 6.7% 6.2% 1.7% 9.5% -2.5% 14.8% 4.5%
Asia Dollar Index USD 2.0% 1.3% -0.2% -4.0% 6.6% -3.4% -5.5% -2.8% -1.9% 2.6% -1.1%
Commodities
Crude Oil-Brent USD 8.6% 5.7% 22.7% -19.5% 17.7% 52.4% -35.0% -48.3% -0.3% 3.5% 13.3%
Gold USD 3.0% 3.6% 18.3% -1.6% 13.5% 8.1% -10.4% -1.4% -28.3% 7.1% 10.1%
Copper USD 8.5% 5.9% 6.3% -20.3% 31.7% 17.4% -24.4% -16.8% -7.0% 6.3% -22.7%
Source: Principal Asset Management & Bloomberg as at 31 December 2019
Investors should remain diversified across full spectrum of asset classes depending on their respective risk profiles. We
currently think that fixed income returns will be more moderate and thus favour riskier assets like Asia Pacific equities, Global
equities or Global REITS. Equity markets like ASEAN and Malaysia which have underperformed in 2019 may now set to improve
in 2020.
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Quarterly commentary | Summary of Market Outlook and Strategy 1Principal e-Market Outlook - 2020 Quarter 1
02 Global Outlook
The 2020 macro environment marks a big shift from the dynamics of 2019, where we start seeing “green shoots of recovery” as
indicated by forward indicators such as the recovery in Global manufacturing PMIs, steeper yield curves and higher commodity
prices.
Global manufacturing seeing a tentative recovery
Global Services vs Manufacturing PMI
58
56
54
52 51.6
50 50.3
48
Apr-16
Jul-16
Apr-17
Jul-17
Apr-18
Jul-18
Apr-19
Jul-19
Jan-16
Oct-16
Jan-17
Oct-17
Jan-18
Oct-18
Jan-19
Oct-19
Global Manufacturing PMI Global Services PMI
Source: Principal Asset Management & Bloomberg as at 31 December 2019
We see economic fundamentals driving markets in this year with progressive outcome from trade talk, accommodative monetary
policies and a possible weaker USD.
Global central banks may not cut rates aggressively but will continue to
accommodate with loose monetary policy. As additional policy tools, they
will increasingly look at government spending and tax policy to spur growth.
Quarterly commentary | Summary of Market Outlook and Strategy 2Principal e-Market Outlook - 2020 Quarter 1
US Fed and ECB US Fed and ECB likely to stay on hold as they wait to see the impact of previous cuts
US Fed-Probability of rate cuts till June 2020
100%
80%
60%
40%
0.302
20%
0%
-20%
Oct-19
Jun-19
Jul-19
Nov-19
Dec-19
Sep-19
Aug-19
May-19
Jan-20
Cut below 1.50-1.75
Source: Principal Asset Management & Bloomberg as at 31 December 2019
In Europe, the European Central Bank (ECB) has announced a new stimulus package aimed to revive the Eurozone economy.
ECB-Probability of rate cuts till June 2020
100%
80%
60%
40%
20%
0.084
0%
-20%
Jun-19
Sep-19
Aug-19
Oct-19
Dec-19
Nov-19
May-19
Jul-19
Jan-20
Cut below -0.5
Source: Principal Asset Management & Bloomberg as at 31 December 2019
The lifting of Brexit uncertainty and the increased of fiscal stimulus should support the UK economy in 2020. The Conservative
Party winning on the Dec. 12 general election has provided a clearer pathway to Brexit resolution and the end of fiscal austerity.
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Quarterly commentary | Summary of Market Outlook and Strategy 3Principal e-Market Outlook - 2020 Quarter 1
03 Asia-Pacific outlook
The economic momentum of Asia Pacific should turn positive in 2020. This is supported of accommodative monetary and fiscal
policy to sustain domestic consumption as part of the efforts to maintain overall economic activity.
Asian currencies should be supported by high real rates
Real interest rates-Current vs Average since 2010
3
2.5
2
1.5
1
0 .5
0
-0.5
-1
India US China Thai Korea Twn M'sia Indon Phil s
Average (since 2010) Current
Source: Principal Asset Management & Bloomberg as at 31 December 2019
• Leading indicators such as Asia ex Japan PMI index is currently above 50
after recovering from the lows in July.
• This is usually an encouraging sign that external demand is returning as
the impact of the US-China trade war is diminishing.
Quarterly commentary | Summary of Market Outlook and Strategy 4Principal e-Market Outlook - 2020 Quarter 1
Asia ex-Japan Monthly Net Foreign Equity Buying (US$
mln)
60000
40000
20000
14013.6733
0
-20000
-40000
-60000
Ja 5
Ja 6
Ja 7
Ja 8
9
Oc 5
Oc 6
Oc 7
Oc 8
Oc 9
Ju 5
Ju 6
Ju 7
Ju 8
Ju 9
Ap 5
Ap 6
Ap 7
Ap 8
Ap 9
t-1
t-1
t-1
t-1
t-1
l -1
l -1
l -1
l -1
l -1
r -1
r -1
r -1
r -1
r -1
1
1
1
1
1
n-
n-
n-
n-
n-
Ja
Source: Principal Asset Management & Bloomberg as at 31 December 2019
For China, stimulus will likely to be modest in this year, which is enough to stabilise and provide a small boost to the Chinese
economy. The Government’s central goal is to stabilise the broad economy rather than growing it too rapidly.
China Manufg & Non-Manufacturing PMI
53 56.0
52
54.0
51
53.5
50 50.2
52.0
49
48 50.0
Apr-16
Jul-16
Apr-17
Jul-17
Apr-18
Jul-18
Apr-19
Jul-19
Jan-16
Oct-16
Jan-17
Oct-17
Jan-18
Oct-18
Jan-19
Oct-19
Jan-20
China Manuf PMI (LHS) China Non-Manuf PMI (RHS)
Source: Principal Asset Management & Bloomberg as at 31 December 2019
Quarterly commentary | Summary of Market Outlook and Strategy 5Principal e-Market Outlook - 2020 Quarter 1
China: Moving to a more consumption-based economy over time
China Contributn to Real GDP:
Demand side
2% 4% 9%
62% 47% 67%
55% 49% 60% 76% 72%
58%
46% 55% 47%
43% 42% 43% 34% 32% 32%
-8% -2% -1% -10% -9% -4%
2011 2012 2013 2014 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9
Investment Consumption Net Export
Source: Principal Asset Management & Bloomberg as at 31 December 2019
For Japan, the economy will continue to be supported by easing trade tensions,
the improvement in global manufacturing, and tourism spending from hosting the
2020 Olympics.
Thus, we view that such catalysts will increase investor sentiment to be more optimistic and drive capital flow
towards Asian equity markets.
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Quarterly commentary | Summary of Market Outlook and Strategy 6Principal e-Market Outlook - 2020 Quarter 1
04 ASEAN outlook
In Malaysia, the recent December PMI survey showed a firm footing, rising to 50, which suggests an expansion going forward.
Hence, we expect the Malaysian economy to achieve a stronger and sustainable growth supported by growth-oriented Budget
2020, accommodative monetary policy, rebound in exports, and more FDI from supply reallocation from US and China.
Earning downgrade has bottomed
KLCI's Forward EPS
115
110
105
100
95
90
Apr-15
Apr-16
Apr-18
Apr-17
Apr-19
Jul-15
Jul-16
Jul-18
Jul-17
Jul-19
Oct-17
Oct-19
Oct-15
Oct-16
Oct-18
Jan-16
Jan-19
Jan-15
Jan-17
Jan-18
Source: Principal Asset Management & Bloomberg as at 31 December 2019
In Indonesia, post elections, the incumbents are shifting the focus to attract FDIs and improving domestic infrastructure.
Infrastructure investments is still the priority for the country and the government has indicated their intention to increase
spending significantly.
In Thailand, the policies announced so far have been relatively populist. However, we expect the government to announce
something more concrete in 2020 especially on the fiscal front as Thailand is highly exposed to external weakness.
That said, we are Overweight Malaysia, Indonesia
and Singapore as we turn constructively more
positive in 2020.
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Quarterly commentary | Summary of Market Outlook and Strategy 7Principal e-Market Outlook - 2020 Quarter 1
05 Strategy Going Forward
1 In conclusion, we see the investment outlook are as follows:
Equities:
Fixed Income: Global Sukuk
This is on the back of
For Malaysia in particular, The Global Sukuk asset class
improving earnings
our broad sector allocation delivered outstanding returns in
recovery from Asia driven
would be in favour of 2019, driven by interest rate cuts
by Technology and cyclical
corporates vs govvies, which globally and the US-China trade
sectors.
is something that we have tensions. Going forward, the outlook
Regionally, our preference in already done since 3Q2019 for Global Sukuk continues to be
Equities is Asia, Global and and will continue to remain positive as major central banks are
last but not least ASEAN. in our playbook out as we expected to remain accommodative
move further in 2020. to support the slowing growth. We
will continue to mitigate credit risk by
selectively investing in higher-rated
sovereign Sukuk and issuers which
display strong fundamentals and
cashflow generating capabilities.
2 For more conservative clients, we recommend funds which are globally or
regionally diversified with income focussed, such as Asia Dynamic Income funds or
Global REITs.
3 For more aggressive clients, we would advise to focus on growth-oriented funds
with direct exposure to growth areas in China, Asia- Pacific and Global Technology.
Disclaimer: We have based this document on information obtained from sources we believe to be reliable, and we do not
make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness.
Expressions of opinion herein are subject to change without notice. This document should not be construed as an offer or
a solicitation of an offer to purchase or subscribe or sell Principal Asset Management Berhad. Persons wishing to rely upon
this information should perform their own independent evaluation of risks and benefits or consult directly with the source of
information or obtain professional advice. Past performance is not reflective of its future performance.
Additional Disclaimer
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