Overview
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1) Escalation of conflicts drive market volatility
There has been no clear sight of the dust settling from uncertainties that global financial markets continue to grapple with. Trade talks between the US and China are still on-going, although the latest round of additional tariffs that President Trump tweeted about has been delayed. But with the erratic behavior of the US President, there is no discounting the element of surprise in what lies ahead. With the President’s tweets causing such big swings in the global financial markets, JP Morgan created the “Volfefe” Index to track the impact of the President’s tweets on Treasury yields.
Geopolitical tensions in the Middle East, whereas, has escalated further after a drone attack on an oil facility plant in Saudi Arabia. The attack led to a supply disruption from the facility’s output, leading to a spike in oil price. But news of a restoration in almost half the output by the facility before the week was even over caused prices to plunge. Investors have stayed cautious on the situation, fearing a possibility of further escalation to the already tense situation there.
2) Bumpy ride for global growth
The underlying current of uncertainties is expected to drag global growth slower. Import numbers were seen waning in the 2 largest economies, the US and China, as trade negotiations remain unresolved. Trade dependent countries took a bigger hit, while political disputes have taken its toll on certain economies.
The protests in Hong Kong continues with escalating violence despite the withdrawal of the extradition bill as anti-government protesters complain about perceived interference from China. The prolonged protests have caused investors to shy away, leaving tourism numbers to fall drastically this year. Analysts have already forecasted slower GDP growth caused by the unrest.
3) Central banks take turns to cut rates
Interest rate cuts by global central banks provided a clear indication of a more accommodative stance in a bid to boost economic activity. This year, we have seen emerging market central banks go on a easing cycle, with Malaysia, India, and the Philippines cutting its benchmark interest rates further as it grapples with slowing economic growth.
In the spotlight, the US Federal Reserve started reducing its benchmark interest rates for the first time in a decade. Its first interest rate cut for 2019 came in July, with the 2nd in September to bring its benchmark lending rate to a target range of 1.75% to 2.0%.
With approximately USD 15 trillion worth of bonds already offering zero to negative yields, it is seen that investors are easing in to the idea of zero, or even negative returns indicating that the lower interest rate environment will likely continue in the near term.
Market performance thus far
| Index | YTD (%) | 1-month (%) | 3-months (%) |
| Shanghai Shenzhen CSI 300 Index | 34.63 | 5.50 | 8.23 |
| S&P 500 | 21.56 | 4.27 | 3.56 |
| S&P New China Sectors Ex A Share Index | 18.70 | 5.69 | 5.13 |
| Gold (LBMA Gold Price AM) | 16.63 | -0.60 | 11.72 |
| MSCI China | 14.96 | 5.94 | 3.65 |
| Hang Seng Index | 9.97 | 4.63 | -1.22 |
| MSCI Asia ex Japan | 9.89 | 4.97 | 1.37 |
| FTSE China 50 Index | 9.56 | 6.06 | 1.10 |
| Korea Stock Exchange | 3.48 | 7.45 | -1.08 |
| FBM KLCI | -1.70 | 0.80 | -2.32 |
Source: Bloomberg as at 18 September 2019. All returns are total returns, and quoted in local currency terms.
Gaining access
Learn more about how you can easily gain access to some of the above indices through exchange-traded funds from TradePlus by Affin Hwang Asset Management Berhad.
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