Window To The World
- Modest gain in most markets – After a remarkable gain in September, most of the market registered modest increase in Oct except China. Hong Kong and South Korea rose 3.3% and 0.5% respectively compared to September. Whereas Japan slipped 1.8% from September as the market still remains in doldrums.
- China outpace most of the market in October –China equity market recorded phenomenal gain of 11.3% compared to 0.6% in September stemming from the revival of investor confidence and ample liquidity resulted from the huge influx of capital seeking to earn high return from the CNY appreciation and its inexorable economic growth. The retails sales surged 18.8% and the urban & rural household per capital rose 7.5% and 9.7% respectively compared to last year bode well for further strengthening of domestic demand and private consumption.
- US Fed to pour US$600bil into the economy – Although the US consumers maintain steady pace of spending, boosting retail sales at 0.6% m-o-m and 7.3% growth compared to last year signalling that the US economy is recovering, US Federal Reserve decided to buy US$600bil of Treasury on fears of latent deflationary problem.
A Peep into Malaysia
- Malaysia equity market gained 2.9% – FMB KLCI registered a modest gain of 2.9% m-o-m in October driving the YTD appreciation to 18.3%, the highest compared to most of the peers in the region. This was due to the rising inflows of foreign capital and positive expectation of market performance.
- Ringgit depreciated marginally – After four consecutive months‟ of appreciation since May 2010, the Ringgit softened 0.34% in October. However, Ringgit still gained 9.59% YTD. The strengthening of Ringgit becomes a challenging issue to defend the competitiveness of our export.
- Higher than expected budget deficit –Malaysia‟s rising operating expenditure of 7% from year 2010 and rather flattish fiscal revenue at RM166bn resulted in higher than expected budget deficit of 5.7% for year 2011. The issues of high budget deficits resulting in high debt servicing in future become a concern for many countries. Failing to control the rising budget deficit may erode creditability of a country and dampens investors‟ confidence and future economic growth.
Lighting Up Your Path
- Implication of US$600bn quantitative easing (QE2) – The huge funds created by US Federal Reserve and its near to zero interest rate will benefit the emerging market‟s stocks and debts markets. The USD will depress and other currencies will strengthen. However, the liquidity will cause inflationary pressure and become a challenge to many countries to contain inflation by normalizing interest rate, further strengthening their currencies or implementing capital intervention. There is also a concern that asset bubbles may burst once the speculative capital flow out of emerging markets.
- Be prepared for profit taking – FBM KLCI has been on the rising trend on liquidity rush and approaching the highest point at 1524.29 on 14th Jan 2008. While there is better sentiment and many perceive that this is going to be a super bull run, profit taking is highly possible. We maintain our moderate and cautious stance.
- Despite the strong bull in KLCI, we will not chase the market and recommend no changes to our portfolio.
- HwangDBS Asia Quantum gained 4.3% in October compared to 4.4%gains in September.
- PruAsia Pacific Shariah Fund slipped from 7.7% gain in September to 3.2% gain in October was consistent with the modest gain in Asia Pacific Markets other than China. The investment in China only contributed around 4% to the total portfolio.
- Kenanga Growth Fund outperformed FBM KLCI index and gained 4.3% in October.
- HwangDBS Aiiman Growth fund‟s performance improved noticeably from 2.9% in September to 4.5% in October.
- For mixed asset class, the performance of OSK-UOB Kidsave and RHB Mudharabah improved with gain of 1.9% and 3.8% respectively compared to 1.5% and 3.3% gain in September.
- AmBon had been consistently outperforming benchmark since August 2009 and registered a gain of 0.3% in October.
- The YTD return of PMB Model portfolio and PMB Islamic portfolio have been on the rise after bottoming out in May 2010, both registered YTD gain of 10.2%. In October, PMB Model portfolio‟s maintained the same growth pace at 2.6% m-o-m, whereas PMB Islamic Model Portfolio gained another 3.5% after appreciating 3.7% in September.
- No changes were made to both portfolios.
- Turned Around – We met with the CIO of Kenanga Investor Bhd to understand the improved performance of Kenanga Growth Fund. The fund turned around after the change of management in 2009. It has since outperformed FBM KLCI due to its defensive strategy investing a large percentage of its fund in consumer non-cyclical sector.
- Risk Managed Investment Strategy- Kenanga Growth Fund has implemented the “Risk Managed Investment Strategy” since April 2007. They estimate the volatility of the portfolio to determine the portfolio‟s value-at-risk and also test them under stress conditions to ensure that they do not break below the floor. If the portfolio performed above the floor value, they will resume the amount of risk which is equivalent to the differential gap called “Risk Capital”.
- Definition of “Floor Value”- The floor value is rising constantly and represents minimum return required by the client over the medium-to-longer term.
- Majority of equity funds in Malaysia outperformed FBM KLCI which gained 2.9% in October and maintained average gain at around 3.6%. The average performance of funds under Mixed Assets and Fixed Income remained flattish. Most of the overseas funds registered lower gain compared to September witnessed the modest gain in most of the Asia Pacific Region.
- Avenue BondExtra recover 1.7% in October compared to huge loss of 10.1% in September caused by the default of CapOne bond as mentioned in our September report. They are in the process of asking for deferment and restructuring of debt payment.
- Kenanga Investor Berhad (formerly known as CMS Trust Management Berhad) has been 100% acquired by Kenanga Investment Bank in December 2009. CMS Trust Management Berhad) was previously owned by CMS Capital Sdn Bhd and AGI Asset Management Limited. Seven funds under this company have been renamed from CMS to Kenanga with effect from 1st November 2010. (see funds in the scoreboard with symbol “!”)