A deja-vu of 2018

We started the year with confidence that global financial markets were set for an upward trajectory this year after signs that key markets were going to lead the pack.  Going into the final weeks of the year, markets seem as uncertain as it did this time last year.

The on-going trade negotiations between the US and China has remained just that…. an on-going negotiation. Threats, and retaliatory tariff plans have been thrown between the two economic giants throughout the year, with little execution taking place. Though both parties have recently indicated their intention to secure a phase one trade deal which would include some form of tariff rollback; the details of the deal, if any, has yet to be set in stone.

 

Politics that have been hogging headlines

Global financial markets have had little reason to celebrate as geopolitical concerns hogged the headlines. Missile testing by the North Korean regime have been nudged out of frontpage news, replaced instead by drone attacks in the Middle East. Economic impact on Hong Kong, which has long been referred to as the financial hub of Asia, is unlikely to be avoided as black-clad protestors continue to riot across the island. The protests showed little signs of coming to an end despite having lasted for months.

Pockets of spats also took place across other markets, with South Korea, and Japan taking each other off its list of preferred trade partners. 

Despite voting to leave the European Union in June 2016, the United Kingdom is today still very much a part of the EU. Though Boris Johnson and his Conservative party’s recent victory at the UK polls now paves a path for the withdrawal to happen by 31 January 2020, there is still a need for both the UK and EU to iron out the details on trade.

Additionally, on the US front, the recent impeachment of the erratic US President is also causing some uncertainties to arise, although we have not seen much impact on the financial market.

 

Asian governments make their move to address slowing growth

The Japan government has already put in place a package that exceeds USD230 billion to address its slowing consumer spending post its recently imposed tax hike in October. This comes after Hong Kong pledged to boost its business-friendly status which has been hampered by the on-going protests. 

Faced with the threat of slowing growth, governments across the region are on the similar track with its own stimulus packages; China’s tax cuts, Thailand’s initiative to boost consumer spending and investment, Indonesia’s push for tax reforms, South Korea’s expansionary budget, and India’s tax cuts and stimulus boost for exporters. 

 

Markets continue to rise

Global financial markets were seen mostly making the best of what it had, taking on a life of its own as it moved on news and tweets instead of old fashion fundamentals. Despite the expected deceleration in growth and the uncertainties that have plagued us for most of the year, many markets have recorded decent double-digit gains as at 18 December 2019.

Oddly, the 2 major economies that have been at logger heads over a trade deal have locked-in the strongest gains compared to its peers.  Gold price had also enjoyed a strong upward trajectory this year despite commonly known as a boring investment instrument. The LBMA Gold Price closed more than 15% higher YTD in MYR terms as cautious investors shied away from the volatility of risk assets. 

 

Positioning for the year ahead?

With little signs of the uncertainties to be resolved in the near-term, global financial markets are expected to remain under pressure from external forces. Sentiment will likely be dictated by the on-going geopolitical tensions, coupled with the slowing pace of global growth.

Which is likely the reason physically-backed Gold ETFs globally had seen its assets climb to a record high in November. Besides ETFs, global central banks have also been a steady buyer of the precious metal - a trend analysts are expecting to see continue given the current economic condition. The world’s largest physically-backed Gold ETF, SPDR Gold Trust currently trades at USD139 per unit, and is available on the US stock exchange. TradePlus Shariah Gold Tracker, whereas, Malaysia’s first and only Shariah-compliant physically-gold backed ETF, provides identical exposure and is conveniently listed on Bursa Malaysia and can be traded in Ringgit, at a price range of approximately MYR2.00 per unit.

While China had recently released data indicating slower exports, it’s consumers’ rising support for homegrown brands are reshaping China’s retail market, which could prove to be an opportunity for investors. The TradePlus S&P New China Tracker is an exchange-traded fund by Affin Hwang Asset Management, that provides exposure primarily into China’s dominating consumption sector with underlying such as e-commerce giants Alibaba, Tencent, JD.Com, and insurance leaders AIA, and Ping An Insurance.

Diversification would be important in your quest to build a long-term sustainable investment portfolio. We believe that exposure into a wider range of markets would be beneficial to ride through the market cycles, and volatility as markets continue to thread in uncertainties. In a race to build returns, we would also advocate building a low-cost investment portfolio, taking into account both actively manage unit trust funds, as well as passively managed exchange-traded funds.

Learn more about your options within the exchange-traded funds space by visiting our website at https://tradeplus.com.my/.

 

Table 1: Performance of Global Indices as at 18 December 2019

Source: Bloomberg as at 18 December 2019. 1H2019 returns are from 2 January 2019 to 30 June 2019, and YTD returns are from 2 January 2019 to 18 December 2019. All returns are quoted in MYR terms.

 


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