Equity Market Outlook for the next 3 months as of 31 August 2021
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Equity Market Outlook
for the next 3 months as of 31 August 2021
Value
PineBridge JPM Amundi Fidelity AIMHK
Partners
North
America
Europe
Japan
Hong Kong
Greater
China
Other Asia
Remarks:
The above outlook is obtained from the respective Investment Managers for the next three months as of the date in the title. It does not represent the opinion of the
Trustee.
Investment views above apply to equity markets only.
AIA confidential and proprietary information. Not for distribution.
Legends: Heavily overweight Overweight Neutral Underweight Heavily underweightMarket Review in August 2021 (PineBridge)
Market Review in August Market outlook
• The US equity market continued to rally as the economy rebounded thanks to stronger economic data and solid quarterly results.
Concerns on inflationary pressures remained, yet the market concerns over any surprises out of the Fed’s annual Jackson Hole
symposium were placed at ease by the Fed’s dovish tone. The Fed still believes the recent inflation pressures are transitory, and
that “substantial further progress” toward maximum employment had not been achieved yet, reiterating the desire to see further
progress on the labour market before tapering begins. The Fed has also emphasized that the tapering timeline is separate to that of
rate hikes. The September meeting results of the Federal Open Market Committee will be important, as it will provide further
updates on the timeline of tapering and the release of the committee’s latest rate forecasts. The Senate has also passed a bipartisan
North infrastructure deal of roughly $1 trillion, which contains USD 550 billion of new spending in physical infrastructure spread over five
America
years. The bill now moved to the House for approval.
• The latest flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell in August, signaling the
slowest expansion in the private sector in 2021. Amidst the surge in new delta variant COVID-19 cases, the US Labor Department
announced 235,000 jobs were created in August, the fewest number of jobs created in seven months as COVID-19 resurgence
impacted demand in restaurants and hotels, and affected hiring within the leisure and hospitality sector.
• European equities rose in August, thanks to the expanded reopenings and robust quarterly earnings growth. August was a quieter
month for continental Europe as expected. Consumer confidence fell in August as the spread of Delta variant cases in Europe
continued to rise. However, economic data remains strong despite the rise of Delta variant cases across Europe, as around 70% of
most large Eurozone countries are now vaccinated against the virus.
• The longer-term investment case in support of the region remains, as it should benefit from the current reflationary environment.
Europe Despite the recent wobble due to concerns about the Delta variant, we see strong momentum ahead for European equities, which
have higher exposure to domestic growth conditions. Europe continues to be supported by the rebound in demand for global goods
and should be positively impacted by increased demand for exports from the US. August’s flash PMI data was encouraging, showing
the eurozone’s recovery is under way. The reopening of the UK economy saw its remaining restrictions lifted in August - This
continued to be backed by strong consumer demand and employment data, which resulted in the UK services sector rebounding.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (PineBridge)
Market Review in August Market outlook
• The Japanese equities rose in August even though market sentiment was weighed down by the rise in domestic COVID-19 cases
and production cuts by Toyota. US indices reached new highs and Japan equities rallied throughout the month. The Japanese
economy expanded at a faster pace than expected with real GDP increasing 0.3% QoQ in Q2 2021. Domestic demand rebounded,
thanks to private sector’s investment and consumption efforts. However, Japanese yen depreciated against the US dollar amidst
rising Covid cases due to concerns over lack of hospital capacity. Japanese investors remain sensitive to increases in US Treasuries
and look for opportunities to invest. Despite expectations of economic normalization, the rollout of mass vaccinations and the Tokyo
Olympics being held this year, new infections continue to rise, and the fourth state of emergency held mainly around Tokyo from
July 12 has been extended to 8 more prefectures, until September 12th.
Japan
• Despite the recent resurgence of Covid-19, we continue to find Japanese equities attractive, as Japan is dependent on global
growth, attractively valued, and linked to the US economy. Japanese equities provide operational leverage to global growth, and the
recent pullback was a good entry point to benefit from the vaccine rollout there. Japan will also benefit from the spillover effects of
US fiscally driven growth, without the impact of higher taxes and regulation. Consumer confidence will be crucial for the recovery
due to high savings rate and expected tightening of labour market conditions. Upcoming elections could potentially revive the
reform agenda which will be another positive to the market outlook.
• Despite a stabilizing COVID-19 situation, Hong Kong equities fell again in August, due to China’s broad-based policy tightening.
However, steady vaccination progress and effective containment of local infections can be seen. The growth recovery is expected to
continue in H2. 45% of the total population has been fully vaccinated and 55% of total population have had at least one dose. Herd
immunity (~70% of population vaccinated) is expected by year-end if the current rate of vaccinations continues.
Hong Kong • While consumption recovery have been gradual, retail sales growth slowed as social distancing measures constrained consumer
spending, while local citizens awaited the arrival of electronic vouchers later in the year. There is further recovery on the labour
market front, and the gradual easing of local restrictions due to reduced Covid-19 cases, alongside the additional support from the
recent Fiscal Budget, should support the economic recovery. Key risks to the economic recovery include slower progress on the
vaccine distribution, timeline in relaxing border controls to mainland China, containment of epidemic resurgence with the global
Delta surge in cases, and China regulatory concerns.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (PineBridge)
Market Review in August Market outlook
• China equity declined in August as policy normalization and regulatory concerns continued to weigh on performance,
underperforming developed market and emerging market counterparts. Moreover, the Chinese government had imposed
strict lockdown restrictions due to a regional Covid-19 outbreak. China’s equity market performance continues to be
hindered by policy normalization while aided by policymakers’ vow to advance capital market openness. This includes
facilitating China-US cooperation on audit supervision and deepening the connectivity between mainland and HK markets.
China’s regulation shifts continue to have wide-spread implications across many sectors.
Greater China
• The 10th meeting of the Central Committee for Financial and Economic Affairs was held in August, where the meeting
stressed efforts to promote common prosperity in the pursuit of high-quality development to forestall/prevent major
financial risk. Common Prosperity was stressed by President Xi as the development target for 2035. Meanwhile,
manufacturing and non-manufacturing PMI declined in August, impacted by the regional outbreak cases of COVID-19 and
broad-based slowing of economic activities. However, it must be noted that China has been on a solid recovery path since
2020, and that a gradual economic slowdown is not unexpected.
• Asian risk assets recovered and rallied in August, with the MSCI Asia Ex-Japan index marginally underperforming their
developed market counterparts (AC World returns) by 2.4%. Asia ex-Japan’s performance was undermined by tapering
concerns, policy tightening and the increase in Covid cases. Developments in China had reverberated through Asia Ex-
Japan’s financial markets. Moreover, while vaccine roll-outs across Asia were slower compared to Europe and the US,
vaccination campaigns have picked up amidst the resurgence of Covid-19 due to Delta variant across various Asia ex-Japan
Other Asia
countries
Market
• India and ASEAN equities were the best performers in August due to positive revisions to growth, while China equity sold off
in August as policy normalization and regulatory concerns continued to weigh on performance, affecting many private-
sector industries. In its July World Economic Outlook, the IMF expects the Indian economy to grow at 9.5% in 2021 - The
fastest pace of growth among the large economies.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (Amundi)
Market Review in August Market outlook
• We are seeing some hiccups in President Biden’s fiscal stimulus plans amid slowing vaccinations and the spread of virus
variants. However, markets seem to be underestimating the will of the government to reopen the economy as hospitalisations
remain low.
North America
• We believe this is not a time to reduce the cyclicality in portfolios, but to remain selective in light of growing consumer demand,
expectations of an earnings revival and inflationary pressures on corporate margins.
• The region should witness robust growth but as we progress into the earnings season we will see future guidance (we think
earnings should grow) on how companies will pass rising costs on to consumers to protect margins. On the other hand, the
market is fixated on inflation and the spread of virus variants amid the reopening.
Europe
• The value/cyclical rotation will likely continue but will not be linear. We are increasingly focused on ESG and dividend themes.
• Some renewed uncertainty over the COVID-19 resurgence affected the markets but given the country’s cyclical nature and a
weakening yen, markets should eventually catch up.
Japan
• MSCI Hong Kong Index was down 1.02% in August (in USD terms, net dividends excluded).
• Headline Consumer Price Index (CPI) growth came in weaker than expected, at 3.7% yoy in July.
• Netting out the effects of the government’s one-off relief measures, underlying CPI surged to 1.0% yoy from 0.4% yoy in June. The
Hong Kong larger increase was mainly due to the enlarged increases in the costs for meals out and takeaway food as well as the increases in
local transport fares.
• Hong Kong’s unemployment rate dropped to 5.0% in July, on rising employment and a decline in total labor force.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (Amundi)
Market Review in August Market outlook
• MSCI China Index was down 0.06% in August (in USD terms, net dividends excluded).
• On the back of the regulatory paradigm shift, flows and positioning favoured sectors with policy tailwinds such as New
Energy Vehicles (NEV) and Solar.
• On macros, July’s data shows a broad economic slowdown in China. Production, consumption and investment all
Greater China
disappointed. The broad policy tapering plus sector-level tightening were the major culprit behind the slowdown.
• Looking ahead, in light of weakening growth momentum and inflation risks at bay, it is expected that China’s policy stance
turn more to the dovish side, while People's Bank of China (PBoC) to keep an accommodative liquidity stance without rate
cuts.
• MSCI Asia ex Japan Index was up 2.08% in August (in USD terms, net dividends excluded), slightly underperforming the
MSCI World Index which gained 2.35% during the month (in USD terms, net dividends excluded).
• Global markets performed well in August even US Federal Reserve Chairman Powell's Jackson Hole speech mentioned
about tapering.
Other Asia
• Numbers of COVID-19 cases in South-East Asia are still worrying, which Vietnam imposed lockdown in its capital as well as
major cities.
• Regulatory overhang in China continued affect Hong Kong and China market, and China’s pledges for “Common Prosperity”
made investors nervous on fiscal changes.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (Fidelity)
Market Review in August Market outlook
• US equities continued to rally in August. Equity indices resumed their strong streak as investors responded positively to the
passage of the infrastructure bill and clearer messaging by US Federal Reserve chairman Jerome Powell. While continued
enthusiasm over corporate earnings helped, the rise of the Delta variant of COVID-19 and slowing consumer spending somewhat
diminished investor sentiment. Markets surged early in the month after the US Senate passed a bipartisan infrastructure
package.
United States
• The US Federal Reserve indicated that the tapering timeline for asset purchases would be disconnected from the timing of
interest rate increases, following months of market speculation. This gives the Federal Reserve more flexibility in its policy
options. Among sectors, financials, communications and utilities were the best performers. From a style perspective, growth and
momentum stocks significantly outperformed value and quality names. Mid-cap and large-cap stocks marginally outpaced small-
cap names in August.
• European equity markets continued to rise in August, driven by strong quarterly earnings and optimism over an economic
recovery, supported by high rates of vaccination. However, gains were capped as data showed that inflation surged to a 10-year
high in August, and that further rises were likely, challenging the European Central Bank’s benign view on price growth.
Europe • Consumer prices saw an increase of 3% this month (2.2% in July), well above the European Central Bank’s target of 2%, fuelled
by rising costs of energy, food and industrial goods. However, the European Central Bank argues that the majority of the inflation
increase can be attributed to supply chain constraints and should ease by early next year.
• The Japanese market rose as positive corporate earnings countered concerns over the fast-spreading Delta variant of COVID-19.
The Japanese government decided to extend the COVID-19 state of emergency covering Tokyo and five other areas to 12
September, while expanding the measure to seven more prefectures as the resurgence of infections shows no signs of subsiding.
Japan • Markets were also enthused by upbeat earnings, although sentiment was dampened after Toyota Motor announced plans to
slash its global output by 40% in September due to chip shortages. At a sector level, marine transportation, iron & steel and
precision instruments sectors were among the prominent gainers, while oil & coal products, pulp & paper and non-ferrous metals
companies reported the biggest losses.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (Fidelity)
Market Review in August Market outlook
• Asia Pacific ex Japan equities posted modest gains as the COVID-19 situation in China and South Asia improved towards the
later part of the month. Investors remained wary ahead of US Federal Reserve President Jerome Powell’s speech, which was
scheduled towards the end of the month. However, his reassuring comments on interest rates hikes lifted equities globally.
• At the country level, Chinese equities were flat, as regulatory headwinds continued through August, with a widening number
of industries and sectors impacted. However, markets recovered later in the month as bargain hunters continued to purchase
stocks in beaten-down sectors. China was also rattled by the Delta variant of COVID-19.
Asia Pacific • Conversely, Hong Kong stocks slid amid muted domestic and Chinese economic data releases. Korean equities were caught in
(ex. Japan) selling activity by foreign investors. Sentiment further weakened after the Bank of Korea raised its key policy rate in August,
becoming first major Asian central bank to raise rates since the start of the pandemic. Investors rotated away from riskier.
• Singapore equities as they remained cautious over a shift in the US Federal Reserve’s pandemic-era accommodative stance.
• Fixed income markets posted mixed returns, with corporate bonds outperforming government bonds. US Federal Reserve
Chairman Jerome Powell’s speech was the key theme that dominated markets in August. Powell indicated that the central
bank’s tapering timeline would be disconnected from the timing of interest rate increases. He said that the central bank
would begin lowering its asset purchases later this year, but that interest rate hikes were still far off. Core government bond
Other
yields ended higher over the month. US Treasury yields rose following a strong jobs report, which was in line with the goals
markets
set by the US Federal Reserve to start unwinding stimulus.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (Value Partners)
Market Review in August Market outlook
• With the dovish message sent from the Jackson Hole meeting, together with a moderated nonfarm payroll number in
North
August, U.S. Treasury yields will remain stable in the near term. As inflation may remain high for the rest of the year due to
America
heightened commodity prices and wage growth, the Fed will continue the transitory playbook for now.
• Economic activities continue to recover strongly but the market has already priced in the positives. The ECB will gradually
Europe taper as it phases out its ‘Pandemic Emergency Purchase Program’ (PEPP) in Q4. However, with the region’s attractive
valuations compared to the U.S., the market will remain supported.
• With Suga’s unexpected resignation, the early election has boosted investor sentiment with hopes of earlier reopening and
increasing fiscal stimulus to support recovery. Corporate earnings have beaten expectations in the first half. With
Japan
attractive valuations in Japan, foreign capital is expected to come back to narrow the underweight in Japanese
equities. Share buybacks by companies will also support the market.
• Investors now pay more attention to macro factors, such as potential targeted easing, increasing local government bond
Hong Kong issuance, carbon neutrality, and common prosperity in China. While the overall market is expected to be range-bound,
flows will continue to focus on sectors that will benefit from the policy direction.
• Valuations of new economy sectors now reflect the ongoing concerns of increasing regulatory oversight. Investors should
Greater focus on sectors that may benefit from the potential targeted easing policies that may be announced by Q4. Foreign
China investors are taking profit from Taiwan as the market is losing momentum after pricing in strong results from most
companies.
• Investors are concerned about the tighter liquidity environment as the Fed starts to consider tapering. The technical
Other Asia
strength in the US dollar will hamper the performance of Asian equities.
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (AIMHK)
Market Review in August Market Outlook
• US economic momentum decelerated as concerns over the resurgence of pandemic weighed on consumption confidence
and business sentiment. In August, the University of Michigan consumer sentiment index plunged to 70.3, its lowest level
in nearly a decade. Although the ISM Manufacturing PMI rose marginally to 59.9 from July’s 59.5, the ISM Services PMI fell
to 61.7 from 64.1 a month ago.
• Labour market statistics were also disappointing. The non-farm payrolls increased by a much weaker-than-expected
North 235,000 in August. It is also the lowest reading so far this year. The recent surge in coronavirus cases weakened
America consumption demand and caused some companies to slow down their hiring.
• Federal Reserve Chairman Jerome Powell in a speech to the annual Jackson Hole economic conference stated that the Fed
had much ground to cover to reach maximum employment and time would tell whether the 2 percent inflation could be
reached on a sustainable basis. His remark was considered by the financial market to be a dovish stance, implying that the
Fed is in no rush to tighten monetary policy.
• The Euro Stoxx Index closed at another record high in mid-August on the back of strong corporate earnings and M&A
activity. However, economic statistics of the Eurozone indicated that recovery momentum of the currency bloc started to
soften.
Europe
• In August, the IHS Markit Composite PMI of the Eurozone declined to 59.0 from the previous month’s 60.2. The European
Commission Economic Sentiment Indicator, which measures the business and consumer confidence of the monetary union,
fell to 117.5 from the all-time high of 119.0 recorded in July.
• The growth of Japan’s economic activity slowed in August. The Jibun Bank Manufacturing PMI dropped marginally to 52.7
from July’s 53.0. The Services PMI shrank by a bigger extent, plummeting to a 15-month low of 42.9.
Japan
AIA confidential and proprietary information. Not for distribution.Market Review in August 2021 (AIMHK)
Market Review in August Market Outlook
• In August, the Hang Seng Index stabilised and contracted marginally by 0.3% after the sharp correction in the previous
month. However, it still underperformed other major equity markets in Asia. The FTSE MPF Asia Pacific (ex HK, China
and Japan) Index was up 3.2% during the same period. The performance of the Hang Seng Index was mainly dragged
Hong Kong down by property and financial sectors.
• In August, the FTSE MPF Greater China Index recovered after a challenging July by returning 1.1%. Energy, Industrials
and Materials outperformed.
• China passed the Personal Information Protection Law laying out a comprehensive set of rules around data collection to
be implemented on November 1, 2021.
• Diversified financial sector’s performance this month was outstanding supported by news that MSCI signed a license
Greater China agreement with HKEx to launch China A 50 Connect Index futures and China A-shares daily turnover remains elevated at
above Rmb 1 trillion.
• China July’s economic activity data came well below expectations prompting market to anticipate an end to policy
normalization and potentially an acceleration of fiscal support especially on the infrastructure spending. Taiwan’s August
nominal exports grew steadily while volume eased. Tech exports remained strong but eased compared to the previous
month, while non-tech picked up notably since 3Q20.
• In August, ASEAN manufacturing PMI dropped to 44.5, the lowest since May 2020. The resurgence of daily COVID
confirmed cases hurt business and consumer sentiment. The retail sales growth of Indonesia, Singapore and Thailand all
Other Asia decelerated.
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