Budget 2019 – Awakening the Tiger

Not as Bad as Expected

Local markets breathed a collective sigh of relief last week as the much awaited Budget 2019 proved to be less harmful than initially expected. Severe austerity measures to cut costs as well as rumours of new taxes did not materialise. Instead, Pakatan Harapan’s (PH) maiden federal budget was a mildly expansionary one which stuck to fiscal consolidation, whilst providing a social safety net to the vulnerable B40 group.

In a 2-hour speech in Parliament, Finance Minister YB Lim Guan Eng outlined 12 strategic thrusts to return Malaysia’s economic position as an Asian Tiger focusing on 3 areas including institutional reforms, shared economic prosperity and fostering a culture of entrepreneurship.

The government had forecasted lower GDP growth of 4.9% for 2019 amidst uncertainty in the global economic landscape. Expectations of lower growth have already been well telegraphed to the market and this lower growth projection had limited impact.

To shore up its revenue base, the government expects to collect a RM30 billion special dividend from Petronas which sends a clear signal to investors that the government would be the one assuming its massive debt burden instead of the Rakyat. The corporate tax rate was also reduced to 17% from 18% for SMEs with paid-up capital below RM2.5 million and businesses with annual taxable income below RM500,000.

Other measures to boost the national coffers include the proposed setting-up of an airport REIT, where the government hopes to raise RM4billion via a 30% equity stake sale. Complications behind the ownership of Malaysia Airports Holdings Bhd (MAHB) which is also currently undergoing a restructuring and yield levels that are required to launch such a REIT given its limited lifespan may be a challenge.

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What to Expect from US Midterm Elections – How Would Markets React?

In the following interview Huang Juin Hao, Senior Portfolio Manager of Affin Hwang Asset Management shares his thoughts on what to expect from US midterm elections and its implications to markets.


1. When is US midterm elections and what will the electorate be focusing on?

Less than a week, the US will hold its midterm elections that could have major implications to markets depending on the results. The American electorate will head to the polls on 6th November 2018 where they would weigh their political vote on a wide spectrum of issues ranging from the economy, immigration, trade, gun control, climate change, etc.


2. What are the likely outcomes and implications to markets?

According to September polling data, the Democrats could make inroads and wrest back control of the House of Representatives whilst the Republicans would retain control of the Senate. Assuming that happens, this could stifle legislative progress and policy aims of the Trump administration which would impair US President Donald Trump’s ability to pass legislation, possibly leading to a freeze in domestic fiscal policy and register as voter disagreement over trade-tariffs. This could set the stage for a weaker US dollar and a slower pace of Fed rate hikes as growth wanes from a lower fiscal impulse.

Conversely if the Republicans retain control of both the House of Representatives and Senate, this would be an endorsement of Trump’s tax cuts and aggressive trade tariffs, leading to an accelerated pace of rate hikes and a stronger US Dollar.

The outlook for emerging markets (EMs) would hinge on the strength of the US dollar and pace of Fed tightening. We’ve seen EMs bear the brunt of a global selloff this year as investors turn away from risk-assets and plough back money into the US on signs of quicker growth, higher interest rates and a stronger greenback. Escalating trade tensions and geopolitical risks stemming from Turkey and Argentina also spooked investors leading to a selloff in EMs.

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Wild Ride in Markets Driving You Up the Wall?

Are Markets Making you Sick?

Investing can be a mentally stimulating excursion. At once a highly regimented art form deeply rooted in technical analysis & financial theory, but also reliant on gut feel, grit and plenty of gumption.

So when markets vault and fall, some investors can get overwhelmed and be swept away by the volatility.

Studies have shown that stock market volatility has a direct correlation to increased hospitalisation rates and incidences of mental health disorders.

A research produced in 2014 which tracked hospitalisation health records close to three decades (1983 – 2011) found that daily fluctuations in stock prices has an almost immediate impact on the physical health of investors, with sharp price declines increasing hospitalization rates over the next two days.

In a chilling example, on October 19, 1987 otherwise known as Black Monday, the US stock market plunged by over 25% which led to hospital admissions spiking by over 5% on the same day (Source: “Worrying About the Stock Market: Evidence from Hospital Admissions” by Joseph Engelberg and Christopher Parsons, University of California- San Diego, October 2014). 

Sounds alarming, but that’s what the data shows.

However, the important lesson here is that whilst markets are bound to recover and benchmark gauges will recoup their losses, your health may take a turn for the worse and deteriorate beyond the normal course of recovery.

In conjunction with World Mental Health Day, Affin Hwang Asset Management spoke to experts about the link between mental health and investing, as well as the importance of financial wellness as part of a holistic health plan.

Quelling Anxiety and Panic Attacks

So is there is a link between periods of high volatility and mental health afflictions like anxiety or panic attacks?

Rajen Devadason a licensed financial planner with Manulife Asset Management Services Berhad and also CEO of corporate mentoring consultancy RD WealthCreation Sdn Bhd believes that there could be a link between the two, but he notes that it is important not to mix them both as the two conditions are not mutually exclusive.

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Unpacking US-China Trade Tensions: Brace for Further Escalation

In the following interview Huang Juin Hao, Senior Portfolio Manager of Affin Hwang Asset Management shares his views on the brewing trade tensions between US and China, as well as its implications to markets and global supply chains.


1. We’ve seen tensions escalate between US and China amidst newfound allegations of hacking by Chinese authorities. Help us unpack what happened this week in the latest string of incidents that have tested relations between the two countries?

Reports by Bloomberg Businessweek show that investigators have found Chinese microchips were being implanted into servers sold by US-based Supermicro, a leading supplier of server motherboards. These chips were supposedly inserted at factories run by Supermicro’s subcontractors in China and reportedly ended up into almost 30 US companies, including Apple and Amazon, and in the latest news, an undisclosed major US telecommunications company.

As a result of the allegations, Supermicro shares have fallen by over 40%, and the 3 named companies, Supermicro, Apple and Amazon have replied with strong statements disputing the allegations. Technology experts have expressed doubts that China could have performed the allegations as detailed according to Bloomberg, and the US Department of Homeland Security and UK’s National Cyber Security Centre, have also sided with Apple and Amazon.


2) Would this cause a further deterioration of US-China relations and tensions escalating beyond trade?

The likelihood that tensions would escalate has been increasing given the increasingly harder statements and postures struck by both US and China, as well as the involvement of military activities in the South China Sea. Actions from both sides have become increasingly antagonistic and the allegations of spy-chip insertions into the supply chain of US tech companies and the US arrest of a Chinese senior intelligence officer would certainly add fuel to the already heightened tensions existing between US and China.

This raises the risks of a geo-political incident occurring and spiralling out of control, and we while we hope that tensions can be prevented from escalating further, there is no denying that the risk level in the markets has increased.

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100 Days: Move Past Kitchen Sinking to Gain Clarity on Growth

In the following interview Gan Eng Peng, Director of Equity Strategies & Advisory, Affin Hwang Asset Management discusses the market outlook for Malaysia as Pakatan Harapan (PH) approaches its 100-day term in office.


1. Pakatan Harapan (PH) will soon approach its 100th day term on Aug 18 – what’s your assessment so far of the new government and has it sent the right signals to the market?

The way we look at this government is like a new management coming in, taking over and kitchen-sinking. Thus, the first 100 days is about pressing the reset button. But eventually, we need to move beyond this phase. Investors are very clear about what’s wrong with the country; the 1MDB scandal, high debt levels, and the fiscal deficit.

Where there is less clarity now is policies the government has to promote growth. For this, we are waiting for the 100-day Government of Malaysia Symposium which will be held for the first time in September and Budget 2019 that will be tabled on 2 November 2018.


2. PH has a long list of issues to address. From the RM1 trillion debt, narrower revenue sources, capital outflows and brain drain – what are the more pressing challenges ahead for the country and are we addressing them?

There is no doubt that Malaysia has high debt and a narrower revenue base. To allay these concerns, the government needs to show clear evidence of curbing wastages and leakages. We need to start to see this being reflected in better expense/capex control for government departments and government linked companies.

In addition, the government needs to be pro-growth as the risks of high debt and a narrower revenue base subsides significantly as GDP gains momentum. The key concern of the market is whether the country can continue to grow amidst all the kitchen-sinking.

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Affin Hwang Investment Forum 2018: What’s Next?


As volatility roars back into markets in 2018, with the spectre of a trade war looming, a deepening rout in emerging markets (EMs) and widening policy divergence across global central banks; investors were taken on a wild roller-coaster ride thus far as markets soar to roaring highs and plunge to chilling-lows.

Should they stay risk-on or risk-off? Buy the dip or stay on the side-lines for now?

Running for its fourth consecutive year, Affin Hwang Asset Management successfully hosted its annual investment forum fittingly titled ‘What’s Next?’ to address these questions.

The forum took place on 14 July, Saturday at MITEC, Jalan Dutamas and saw overwhelming response with more than 1,200 participants eager to find out what lies ahead for markets and how they should position their portfolios against such a volatile backdrop.

Joined by our investment partners, the forum featured prominent speakers including:-
– Chung Man Wing, Investment Director, Value Partners Limited
– Dr. Gerald Garvey, PhD, Managing Director, BlackRock
– Siva Shanker, Past President, Malaysian Institute of Estate Agent
– Teng Chee Wai, Managing Director, Affin Hwang Asset Management

New China Awakens

The forum got off the ground with the first session by Chung Man Wing, Investment Director of Value Partners who wasted no time to get into market chatter and expounded on the issue of trade war and its implications to economic growth and stock market volatility.

“Chinese equities have been weak of late and this is partly due to reasonable, but slightly overblown concerns from investors about short-term headwinds like the ongoing trade spat between US and China. We think that there will be ultimately a compromise or resolution and even in a worst-case scenario, the Chinese economy is resilient and open enough to withstand a full-blown trade war. Even if you discarded all of China’s exports for an entire year, the incremental damage to China’s overall GDP growth is just at 1.2%. From a fundamentals perspective, we are not overly concerned,” he said.

He also shed light on the changing economic and social structure of the ‘New China’ that currently sits on a crossroad between its deliberate slowdown and deleveraging to rein-in credit bubbles, whilst also achieving sustainable growth by moving up the value chain.

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Five Lessons from Football to Score a Winning Portfolio

From the Football Pitch to the Trading Floor

The 2018 FIFA World Cup is set to kick-off in a couple of weeks. Through glazed eyes and sleepless nights, football fans across the globe will be neglecting their spouses and family for at least a month to cheer on their favourite team into the finals.

But beyond the dribbling and hat-tricks, the game of football also offers valuable lessons that investors can use.

Here are 5 lessons from the football pitch that you can apply in your portfolio management:-

Lesson 1: Stay on the Ball

For 90 minutes, players on either side of the field have only a single objective in mind. To score the most number of goals within the allocated time-frame.

Similar to investing, you need to define your objectives clearly according to your investment horizon and wealth needs.

It’s easy to lose focus in the game when stakes run high and emotions get the better of you. The football pitch can be an assault of the senses with the thunderous cheers of the fans applauding and the field becomes mired in mud before the slinging begins.

Markets can be equally nerve-racking with investors often engulfed with a torrent of information and data, which is made even more stressful because your money is on the line.

But, just like how a striker is able to dribble past opponents to score, an investor must be able to navigate through the trappings of market to block out noise and stay focused on their objective.

Tackle your way to seize opportunities when markets dip, but also have the mental fortitude and self-awareness to know when to conserve your energy to last the entire game

Lesson 2: Diversify your Squad

Having a well-balanced team is like having a diversified portfolio. With only 11 players in the field, you have to manage the available resources at your disposal to assemble a team with killer instincts and an indomitable will to succeed.

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Post GE-14: A New Market Script for Malaysia

Tide Turns in Malaysia

In a watershed election, the opposition won the 14th General Election (GE14) wrestling traditionally held strongholds from the incumbent by taking over states such as Johor, Kedah, and Melaka. Whilst an opposition win raises questions about government regulation and economic policies, we view that such concerns on policy uncertainty will fade as the incoming government clarifies its position.

All markets dislike uncertainty and we expect this could lead to bigger discounts with the adjusting factor being lower share prices overall. This would be the immediate reaction as the selloff will be broad-based.

We are looking at 5-8% immediate downside within the next 1-3 days, where we note that pre-results the market has already corrected by 3.5% since it reached its record high in April.

Stocks including contractors, politically-linked counters and CIMB could take the brunt of the hit. Our Malaysian portfolios have currently 12-15% exposure in such stocks with the largest weights in CIMB, Gamuda and IJM.

Markets Won’t Stay Down For Long

The street is overwhelmingly bearish if the opposition wins. We are on the contrary, bullish.

Any new government will want to generate confidence for the market and overall population. This fading of uncertainty should bring investors back to the market.

Ultimately, we think markets will end up higher in less than a month than pre-election with this new government – barring any unforeseen global macro overhang and a smooth transition of power is achieved.

We take comfort in the fact that major regime changes in overseas markets only had short-term negative impact to their respective markets. The Thai military coup of 2014 drove out foreign investors but strong domestic liquidity boosted the market for a full recovery within 6 days. The correction from Brexit only lasted 3 trading days.

Similarly, the impact from Donald Trump winning the US presidency lasted just 3 hours.  The unfavourable referendum for Italian PM Matteo Renzi only had a 3 minute negative effect.

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Cutting Through Noise to Make Sound Investment Decisions

Bracing for Market Turbulence

Volatile. If there ever was a word to describe markets now, that would be it. Markets were whipsawed last month amidst a torrent of trade retaliatory measures between the US and China, as fears of an escalated trade war kept markets on edge over who will blink first.

Geopolitics also took centre stage following a missile attack in Syria by US-allied forces, as part of a joint-coordinated strike to stem the Syrian regime’s use of chemical weapons in its arsenal.

Locally, Malaysia will also hold its 14th General Election (GE14), with polling taking place on the 9th May.

Trade tariffs, geopolitics, missile strikes, elections – that’s a lot to digest for any experienced fund manager, let alone a casual observer. So, what’s an investor to do?

It’s important to first realise that global markets are prone to ‘noise’ and that most short-term fluctuations in asset prices are a direct reaction from traders reacting to such noise occurrence.

Broadly, noise refers to any information (true or false) or activity that distorts the price trend or underlying fundamentals of an asset class.

In this fast-paced digital age with social media platforms such as Twitter and Facebook, such noise is further amplified in markets that can lead to further confusion.

Here are 3 tips on how investors can cut through the noise to make sound investment decisions:-

Stay Rational

In this current 24-hour news cycle, it’s easy for any investor to be overwhelmed by the constant stream of news flow including economic data and market news that flood our inbox notifications all the time.

Sometimes, this can lead to investors making rash decisions that puts their portfolio at risk. It’s important for investors not to overreact in this instance and to sometimes take a back seat and wait for the dust to settle.

Media outlets including financial publications, online news, business portals and TV channels have the habit of sensationalising headlines and narratives because that’s what sell news and ads.

Market sell-offs, plunging indexes, a sea-of-red, and doomsday scenario headlines prod at our basest instincts of fear and anxiety, which makes us want to tune-in to find out more.

The field of behavioural finance has conducted plenty of research as to why investors behave the way they do in stock markets.

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Keeping an Eye on Inflation

Return to Calmer Waters

After January’s US inflation scare that sent jitters across markets and caused ripples all the way to Asia – it looks like markets are making its return back to calmer waters. US consumer prices held steady in February, soothing investor’s concerns over any sudden spike in inflation that would trigger an acceleration of the pace of interest rate hikes by the US Federal Reserve.

The US consumer price index (CPI) rose 2.2% in the 12 months through February, compared with 2.1% in January, whilst core CPI was up 1.8% from a year earlier for a third month.

As inflation gradually firms up to the Fed’s inflation target, markets have now repriced asset prices in terms of inflationary expectations, where after years of loose monetary policy and quantitative easing (QE) programmes have finally resulted in an uplifting of growth.

Markets were only priced-in for 2 rate hikes by the Fed at the start of the year, before we saw markets sold-off on the back of strong inflation data. But with the correction behind us, markets are now priced in-line with the Fed.

Nonetheless, we don’t expect any rapid runaway inflation data that would spark another market correction like we did in early-February, where markets sold-off over concerns that the Fed would tighten too quickly.

Wage growth has been persistently stubborn, despite tightening labour market conditions. The US added over 313,000 jobs in January beating the average median estimate of 200,000 jobs monthly – however wage growth slowed to 2.6% from 2.9%.

The labour data suggests some uncertainty surrounding existing slack in the US economy and lack of wage growth that would keep the Fed from raising rates too aggressively and stick to a more gradual pace.

A lot of the structural-plays has also not really changed, where we see a global economy that remains heavily indebted with an ageing demographic.

New frontiers in technology including advancement in robotics and increasing automation has also compressed wages, creating the so-called ‘Amazon effect’ that should keep inflationary pressures muted and from rising too quickly.

Though, recent hard data suggest that inflation is picking-up, we don’t expect a breakout in inflation anytime soon that would damage the shoots of early economic recovery. With most of these structural plays still in force, we expect inflation to remain range-bound between 1.5% – 2.5%.

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