COVID-19 Pandemic: Here to stay?

Optimism that the faster rollout of vaccines in 2020 would bring an end to the Covid-19 pandemic pushed global equities to record highs. However, we ended 2021 with the emergence of the Delta variant in April. Majority of the world was forced back into lockdown, especially where vaccine rollout was less efficient. Economic recovery was once again threatened in the 4th quarter with the emergence of the highly mutated Omicron variant in November. Authorities rushed to assess its severity, leaving markets to be dragged into the red. With experts believing that the Omicron is less deadly, albeit more contagious, could we expect more semblance of normalcy as we move into 2022?

Inflation trend: Soaring Prices and Supply Constraints

Continuous lockdowns of global economies, especially within the export-centric Asia triggered a disruption in the global supply chain. Supply shortages, and delivery delays nudged prices of goods higher, which inevitably dragged inflationary rates higher along with it.

With back-log orders still waiting to be fulfilled, prices of goods and inflationary rates are anticipated to remain elevated until the supply chain gets back on track. Tech-related manufacturers have been a strong beneficiary as demand for tech-related products continue to see record growth given the new environment that we are starting to get accustomed to.

West Triumphs East

Markets in the West behaved drastically different compared to its Asian counterparts as inequalities in vaccine supplies saw western economies reopening at a faster rate than Asian countries.

In the US, the sentiment of economic recovery triumphed inflationary pressures, which led to a sooner than expected tapering of bond purchases. Increased confidence also nudged all major indices to double digit gains for the year. The S&P 500 Index gained 31.2%, whilst the Nasdaq jumped 25.5% last year, in MYR terms, whilst the broader Asian markets tracked by the MSCI Asia ex Japan Index slid 3.2% lower.

With tech hogging the limelight, the tech-focused NYSE FANG+ Index rose 21.6% higher over the same period. The Index, which tracks 10 of the most renown tech stocks in the US saw its performance get dragged down when China imposed stricter restrictions on its tech-focused giants. To continue to provide investors with exposure to the largest tech names, the Index also replaced its exposure in Twitter Inc, with Microsoft Corp. The TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker [Bursa stock code: 0830EA], which aims to provide 2X the performance of the Index, saw its NAV climb 29.0% last year.

China: Regulatory crackdowns dominated headlines

It was a topsy turvy year for equities in China as investors dealt with multiple government crackdowns across different industries. From tech giants to the private education industry, and most recently the property sector; market performance took a nosedive into the red as the central government stressed its goal for “common prosperity”.

As crackdowns brought on massive uncertainties to the market, the Shanghai Composite Index emerged as the only index with double digit growth of 11.30% in MYR terms, while the CSI300 Index eked out a marginal 0.68% gain.

The S&P New China Sectors ex A Share Index became the worst performer of the year regionally as New China economic sectors took the brunt of the hit from the crackdowns, returning -28.16% in MYR terms while the 0829EA/EB dipped 27.69% in NAV terms.

The HSCEI Index suffered similar fate as investors fled from China-related investments, leaving the 0833EA, which provides an inverse exposure to the HSCEI Index, to climb 19.1% higher whilst the broader HSCEI Index lost 21.1% in MYR terms over the year.

Local Equities: Uncertainties plague market sentiment

In Malaysia, investors kept its eyes on the progress of economic reopening and political uncertainties that were brought over from 2020.

While earlier seen as relatively successful at containing the COVID-19 virus, the Delta variant brought the country into its strictest lockdown in June. Many businesses were impacted by the effects of extended lockdown; all eyes were on the authorities as they raced against the clock to vaccinate the masses before gradually loosening lockdown restrictions for the fully vaccinated population.

On top of the pandemic, Malaysia was also faced with political uncertainties, as Tan Sri Muhyiddin Yassin was replaced as prime minister by Datuk Seri Ismail Sabri, marking the second change in leadership in 2 years, after the former lost majority support in parliament.

With various uncertainties plaguing the market, the broader FBM KLCI index saw negative returns of -3.67% throughout 2021. However, the DWA Technical Leaders Malaysia Index, which utilises technical analysis to pinpoint stocks with momentum defied the negative sentiment to end the year in the green, and allowing the 0836EA, which tracks the index to end the year 2.1% higher in NAV terms.

Defensive Assets: Making way for higher risk, higher return opportunities

Gold, the safe haven asset saw lacklustre performance in 2021 despite various uncertainties. Investors moved in and out of risk assets throughout the year, as news flows led to a yo-yo in sentiment, and investors’ confidence.

Analysts are expecting to see a continued rise in demand from India caused by pent up demand from the lock-down, and deferred wedding parties.  Gold imports in India more than doubled to USD 55 billion in 2021.  The 0828EA, which tracks the LBMA Gold Price Index dipped 2.2% in MYR terms in 2021

What’s Next in 2022?

While the effects of Omicron remain uncertain, initial research suggests that the strain is more infectious, but less deadly.  This has led major economies to indicate their willingness to keep their economy open as they continue their road to recovery.

Better economic data has led the US Feds to start tapering its monetary policy, while China reiterates its focus on economic stability after the disruption. Locally, markets are expected to keep an eye on politics as the Rakyat readies itself for the next election.

Despite the consensus that COVID-19 is here to stay, REITs can benefit as both governments and companies are now better equipped to handle the curveballs handed to them by the pandemic. The 0837EA, which consists of REITs listed in the Asia ex Japan region provides investors with exposure into properties located worldwide. Over the year, the 0837EA returned 1.12%, with 4% cumulative dividend yield.

Table 1: Price performance of TradePlus ETFs

Table 2: Price Performance of Indices

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