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Economic Recovery | What’s Trending (16th Feb 2021)

Happy Lunar New Year from the team at TradePlus by Affin Hwang AM.

We started the year of the Ox with vigour as major indices in the US hit new highs, while equities in China outperformed its regional peers. Investors’ confidence grew on the back of slowing numbers from the pandemic, and optimism that the relationship between US and China would improve.  Leaders of the 2 major economies have already met, with President Biden signalling a possible pause to the tech ban previously imposed by the Trump administration. In Malaysia, recovery names took the spotlight following the relaxation of MCO2.0, along with a positive outlook for global economic recovery. 3 of TradePlus ETFs hit record high NAV for the second week in a row.

In The News

  • As the Covid-19 vaccines continue to reach the public, case numbers globally has seen an obvious downward trend. New reported cases have more than halved from a peak of over 800,000 daily cases in early January, to just over 300,000 daily cases now. 
  • US Federal Reserve Chair Jerome Powell reiterated policymaker’s intention to keep interest rates near zero, while continuing with USD120 billion in monthly asset purchases. With low interest rates, price to earnings (P/E) ratios for companies also rise, bringing a higher valuation to equities.
  • The downwards trending case numbers and increasingly aggressive rollout of the vaccine boosted US markets to fresh highs. In addition to that, better than expected earnings pushed the S&P 500 up by 0.49% in MYR terms. 
  • Among major indices, tech-focused Nasdaq hit record highs on Tuesday (9/2), outperforming other major indices over the week as it gained 0.98% in MYR terms. However, the FANG+ index managed to outperform the Nasdaq, boosted by performance in Twitter and Baidu as the latter announced a new mobility-as-a-service (MaaS) autonomous driving platform.
  • The FANG+ index posted 4.14% of weekly gains last week, meanwhile the 2x Leveraged 0830EA upped 8.44% over the week, with YTD gains of 28.72% in MYR terms, while ending the week at a record high NAV for the second consecutive week, at RM15.6985. 
  • Investors’ sentiment on the market has also grown stronger as ties between the US, and China improve. Since taking office, President Biden had his first phone call with President Xi of China, discussing various issues ranging from bilateral economic ties, to the pandemic and climate change. It is expected that President Biden’s approach to China will lean more towards cooperation with regional allies to tackle the Chinese competition.
  • The Biden administration also requested a hold on proceedings involving former president Donald Trump administration’s ban on Wechat and TikTok, citing the need for more time to review the proposed bans .
  • The anti-monopoly committee of China’s State Council recently issued formal guidelines regarding monopolistic behaviour by platform operators, in preparation to tighten controls on Chinese internet giants such as Alibaba and Tencent. 
  • In China, markets rallied ahead of the week long Chinese New Year holiday, as the PBOC released its monetary policy report to signal a neutral policy stance, while the MSCI announced the addition of 14 Chinese stocks into its Global Standard Indexes after its February review.
  • Meanwhile, the S&P New China Sectors Ex A Share Index ended the week with returns of 4.23% in MYR terms, with the 0829EA gaining 3.9% over the week to end at a record high NAV for the second week in a row, at RM9.9946. Since the start of the year, the ETF has generated returns of 21.64% in MYR terms.
  • Positive market sentiment in the US spilled over to local markets last week despite reporting a sharper than expected decline in GDP last quarter, as the prospects of a global economic recovery from the impact of the pandemic, coupled with the relaxation of MCO 2.0 brought gains to recovery names.
  • In 4Q2020, Malaysia’s economy shrank by 3.4% due to tightened restrictions to control the spread of the virus, as compared to a decline of 2.7% in the previous quarter.
  • Over the week leading up to the Chinese New Year holidays, the FBM KLCI rose by 1.32%, while returns of the Dorsey Wright Technical Leaders Malaysia MYR Index significantly outperformed the broader index with 2.14% of gains as positive momentum from last week continued on . 
  • The 0836EA, which tracks the said index ended the week 1.76% in the green, closing at another record high NAV of RM1.1336, recording YTD gains of 5.96%.
  • Last week, crude oil prices continued its rally as clearer signs of a recovery from pandemic brought prices of the commodity up by 3.84% last week in anticipation of increased economic activity. 
  • Gold prices continued to slide last week, as positive signs of recovery faltered demand for the precious metal. Price of the precious metal tumbled on Friday during the holidays, leaving the price of Gold to slide 0.22% lower in MYR terms, whilst the GoldETF was sheltered from the drop given the holidays.  The 0828EA, which tracks the LBMA Gold Price upped by 1.05% up till Thursday.

On the Economic Data Front

  • US shows mixed economic data
    • Core CPI data remained unchanged in January, below consensus estimates of a 0.2% increase.
    • Weekly jobless claims dropped to 793,000 but was caused by the revision in last week’s numbers from 779,000 to 812,000.
    • Preliminary gauge of consumer sentiment in February missed expectations at 76.2.
  • Europe economy shows weakness
    • UK’s economy officially contracted by 9.9% in 2020, the most since 1709, with expectations of continued contractions in Q12021 due to continuing lockdown restrictions.
    • The EC has forecasted that the economy will expand by 3.8% in 2021 and 2022, with this year’s projection revised lower.
  • China’s economic data shows continued recovery
    • CPI inflation in January rose 1.0% from December but turned negative from a year earlier.
    • Vehicle sales rose by 30% in January, marking its 10th month of increase.

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