Entries by Affin Hwang Asset Management

US Government Shutdown and Debt Ceiling Concerns

US markets rallied overnight, recovering from losses since the partial government shutdown more than 10 days ago, on news of progress towards a potential deal with the Republicans to avert a debt default on October 17. A plausible breakthrough in the political stalemate seemed evident when House of Representatives Speaker John Boehner offered an olive branch to President Obama to extend the US borrowing authority for six weeks. But his proposal would not mean an end to the shutdown. What was significant about the development? It essentially suggests that both sides appreciate the gravity and the repercussions of a default on the global financial markets. Both sides of the political parties acknowledge that: ‘‘It’s not worth sending our country into a tailspin over ideological differences. I think investors are breathing a sigh of relief.’’ Bond prices fell. The yield on the 10-year US Treasury rose to 2.68% from 2.65% on Wednesday, while the 30-year increased to 3.74% from 3.72%. Prices and yields move inversely. We examine some of the issues, as well as the various scenarios and probabilities of a resolution in order to assist us in positioning our portfolios during this period, particularly the impact on the Asian markets […]

What’s happening in the markets?

What’s happening in the markets? Talks of the Federal Reserve (Feds) potentially tapering its Quantitative Easing (QE) program has caused major corrections in the global equity markets off their recent all-time highs. While improvement in US growth numbers are expected to compensate for the scaling down of the bond-purchase program by the Feds, markets remain more concerned on the Asian markets which has seen growth but not at a material pace. After being supported by liquidity in the past year, concerns of a tapering off saw global markets being sold down. Better economic data from the economic giant led the US markets to correct between 3 to 4% while its Asian counterparts slid between 10 to 15%. Income yielding investments such as Real Estate Investment Trusts (REITs) and bond like instruments experienced a larger impact after being priced off the US Treasuries. The rise in yields led to heavier borrowing costs leading these income yielding investments to take the brunt of the hit. Gold, which has always been seen as a safe haven asset has also not been spared. Financial investors, who remain the top 3 largest investors of the precious metal and likely to have took on additional positions […]

A Welcomed Market Correction

A Welcomed Market Correction Summary Pincer movement caught the market off-guard A welcomed market correction Highly invested equity positions & reduced fixed income portfolio durations Pincer Movement Caught the Market Off-guard Major global markets were caught off-guard by the pincer movement of the liquidity-tightening phobia and the worse-than-expected China manufacturing data. The fear of the end of Quantitative Easing (QE) has driven up the yields of US Treasury (UST) bills as well as Japanese Government Bond’s too. The combination of the US Federal Reserve Bank (The Fed) Chairman Ben Bernanke’s message this morning and the minutes from the Federal Open Market Committee (FOMC) meeting caused a stir among investors who become fixated with the possibility of the end of QE. Should The Fed pulls back QE, that may spell the end of the liquidity -charged rallies in the markets, which have been driven by shots QE in the past years since the onslaught of the Global Financial Crisis in 2008. Weak China manufacturing data, such as the Purchasing Managers’ Index (PMI), is a setback for them. The initial HSBC PMI for China in May 2013 came in below market expectations at a seven-month low of 49.6 (versus 50.4 in April […]

KLCI Post-Election

Market can now Move On & Move Up Summary Event risk is behind us Market can focus on the fundamentals Our equity portfolios are in a highly invested position Now that the event risk in Malaysia is behind us, it is time for our market to focus on the fundamentals driving it.  With the ruling party maintaining its position as the government, we believe our local bourse will continue its ascension as investors can now start deploying their cash to the market, which has been sitting on the sidelines waiting for the outcome of the election. We are expecting a surge in buying activities led by foreign and local institutional investors who are attracted by our lagging market performance versus the regional peers and strong economic fundamentals such as good foreign direct investment, a positive investment cycle and strong consumer confidence. Investment Strategy In our case, we had been gradually deploying our excess cash to work since end February and have been buying the financial, oil and gas, and some property development stocks.  This was to position the portfolio for what we expected to be a status quo election outcome. Now, we are adding on equity weight in sectors that […]

Catch the Equity Wave

The equity market is on the cusp of an upward path and is in a position it has not been in for over a decade. This ‘Goldilocks economy’ as David Shulman defines it, presents a conducive environment for equities to take off as economic growth is neither too hot nor too cold, inflation rates are low and there is plenty of liquidity to support the market. The main driver in the stock market last year was dividend-yielding stocks, which have already run up a lot by now. This year, the direction of equity markets will very much be determined by local events as opposed to the externally-driven trends of the past decade. As such, deep understanding of local fundamentals, forming and taking a view of it, and high conviction stock picking are the essential in generating performance. The success of our approach hinges on the conviction and courage in executing it. Here is a snapshot of our view on the major global economies we monitor, which sets the foundation of our investment strategies in Asian markets in the months ahead. Major Global Economies at a Glance Like it or not, US Sets the Tone of Global Economic Growth Façade Our […]

Podcast

Breakfast Grille Interview, BFM89.9 – 7 January 2014 Davig Ng, Chief Investment Officer, talks about 2014 Market outlook: The Continued Case for Equities. 1. Part One 2. Part Two 3. Part Three Breakfast Grille Interview, BFM89.9 – 1 October 2013 Teng Chee Wai, Chief Executive Officer and Executive Director, talks about the Affin Holding’s acquisition of Hwang Investment Management. 1. Part One 2. Part Two   Business Breakfast Edition – You Asked, We Answered! Speakers: 1. Teng Chee Wai, Executive Director & Chief Executive Officer, HwangIM HwangIM on hitting RM20b AUM target HwangIM sets a new AUM target: RM30 billion in 3 years! In-house Managed Funds The Industry Leader 2. David Ng, Chief Investment Officer, HwangIM The US market and monetary policy The Yen Movement The investment scenario in the Asia Pacific region 3. Gan Eng Peng, Head of Equities, HwangIM Malaysian Market Outlook The Banking Sector The Commodities and Plantation Sectors The Oil & Gas Sector 3. Esther Teo Keet Ying, Head of Fixed Income, HwangIM The Yen Movement Asian Bond Market The Interest Rates Fixed Income: Asset Allocation Strategy

Yen Carry Trade

Do you foresee the Yen carry trade/ hot money and currency war become the main theme driving the global capital market this yearYes, for the next few months markets and central banks will likely refocus their attention to the issue of currency war. This beggar-thy-neighbour economic policy impacts the Asian (ex-Japan) countries, especially the exporting nations and those with higher export-to-GDP ratios. As such a weaker Yen is like adding fuel to the already heated competition for exports. If yes, which markets you believe will mostly likely benefit from the Yen carry trade and whyThe beneficiaries of a weaker Yen are the higher yielding EM local currency markets such as Brazil, Indonesia, Malaysia, South Africa and Poland. This is compared to the low interest rate-bearing currencies such as GBP and EUR, which leaves EM markets looking attractive. Will the impact of a Yen carry trade this round greater than the one in 2004-2008, given Abe’s determination to reboot Japan’s economy with an aggressive monetary policyShould the aggressive monetary policy by Bank of Japan comes to fruition such as hitting a 2% inflation target (although many argue against achieving this), USD/JPY needs to weaken past the JPY 100 mark, so there […]

Heed the Storm in the Teacup

  Summary A knee-jerk reaction in KLCI despite knowledge of the GE Equity: Underweighted Malaysia since 2012 Fixed income: Trimmed Malaysia’s exposure & shortened duration since late-2012 Sell first, Question later What happened these two days was a knee-jerk reaction towards the 2.4% correction in our KLCI on the back of strong rumours of the impending General Election (GE). The severity of the correction did catch many off-guard as GE is a widely expected and inevitable event in the near term. We think this is a case of ‘sell first and question later’ as some fund selling activities triggered a small domino effect within local funds. In addition, the lack of government fund participation in the market, which traditionally accounted for 30% to 60% of the market trading activities, meant there was not much support provided. We certainly do not expect the market to correct 10% to 15% in the next couple of weeks as the short-term selling activities were overdone. Our view and strategy is more long-drawn. Equity Investment Strategy For our Malaysian-focused funds, we have been underweight the Malaysian market with about 15% to 20% cash levels and we have been avoiding politically-linked stocks since last year. This […]

From the MD’s Desk: 2013 Market Outlook & Investing Guide

Will the strong bond fund buying and subdued equity continue in 2013? What are the key drivers to encourage investors to overweight in their equity exposureDrivers to encourage investors to overweight equities: Sustained economic growth as growth is not visible in the last 4 years due to unexpected events (ie; 2008 global financial crisis, European debt crisis, slowdown of BRIC). Decline in contagion risk (EU and US debt crisis). It is better now as debt is under control and balance sheet is normalising. However it will take a while to see confirmation of a full recovery.   The financial sector in the US had its run in 2012. What resulted in such good performance and will the party continue in 2013 Financial sector rallied due to: The US debt crisis, which resulted in dismal 2011 performance. By 2012, things started to take a better turn and that is showing it the banking sector’s earnings. There were more good news coming through in 2012, especially 2H12. Housing price starts to show signs of recovery & it helps when the US banks are less exposed to the domestic housing market after the sub-prime crisis. This helps to improve their balance sheet.   […]

Business trust vs REITs structure

Rules to allow the listing of business trusts in Malaysia are out and several listings are being pitched by bankers. In your view, how much more yield do you reckon business trusts should offer relative to REITs to be attractive in Malaysia, given their difference in risk profiles  Business trusts listed in Singapore have not done well in general. A few business trust IPOs in Singapore was also cancelled or postponed due to poor demand. This is despite high yields of 8-11% and good sponsor names.Business trust assets tend to be of limited life span, like a ship or a concession to a port. This is unlike freehold properties in REITs which last into perpetuity. Business trust assets also tend not to appreciate in value over time, again also unlike properties which have a long term capital appreciation tendencies.This basically means investors of business trust need to be compensated to hold a depreciating asset with limited income generating lifespan. So for example, if the asset life lasts for 10 years, then investors need to be paid 10% per year for the return OF their capital invested. On top of that, they need to be paid the risk of holding on […]