This article first appeared in Capital, The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

Founder And Chief Investment Officer

Singular Asset Management Sdn Bhd

There was no shortage of significant events that impacted the market in 2023. Over the course of the year, various incidents captured the attention of the financial media, with the banking crisis in the US and the outbreak of geopolitical conflicts in the Middle East dominating the headlines for weeks on end. In our view, the dominant theme that drove financial market movements can be traced back to investors attempting to time the peak of the US Federal Reserve (Fed) funds interest rate. As persistently high inflation plagued the US economy in the last two years, the Fed hiked policy rates a staggering 11 times. Consequently, US Treasury yields rose to their highest point in over a decade, strengthening the US dollar and dampening investor interest in both bonds and equities, especially in the emerging markets.

By November, a slower US Treasury borrowing plan, persistent US disinflation trend, a weak jobs report and dovish commentary from Fed chairman Jerome Powell fuelled market speculation that the long-awaited “peak rates” had finally arrived. During the last Federal Open Market Committee meeting of 2023 in December, further comments by Powell signalled that the historic tightening of monetary policy was likely over and discussion of rate cuts was coming “into view”. This resulted in the plummeting of US Treasury yields (US 10-year Treasury yields fell over 100 basis points in less than two months), sparking a pan-market rebound rally in everything from stocks to bonds to cryptocurrencies. Taking a closer look at the reinvigorated equity markets, we noticed that markets with a higher concentration of growth and tech names such as the Nasdaq, South Korea and Taiwan disproportionately benefited from renewed investor optimism. Could this be a sign of things to come?

My team and I at Singular Asset Management have been diligently meeting with the management of companies both in Malaysia and regionally, keeping an eye on the latest on-the-ground developments. We have also proactively participated in many investor conferences and had many interesting discussions with global and regional investors alike. Based on our observations, while debates on whether the US will finally enter a long-heralded recession continue, the market consensus seems to be that it will slow down (recession or not).

Going forward, the key question on every investor’s mind is how fast and deep a rate cut is the Fed willing to make and thus how much the US dollar might weaken? A weaker US dollar typically correlates with a strong performance in global emerging markets, which would be a boon for Asian equity markets.

The year 2024 will also be one of elections across multiple emerging markets (EM). Many heavyweights on the MSCI Emerging Market Index are set to go to the polls, including Taiwan, India, South Korea, Mexico and Indonesia. Together, these countries make up close to 50% of the allocation on the benchmark index, while accounting for around 27% and 43% of EM gross domestic product and population respectively. In general, we can expect these incumbent EM governments to introduce more popular policies with more “goodies” to promote a more vibrant economy and keep voters happy ahead of their visit to the ballot box.

To us, Asean markets are looking increasingly attractive going into 2024. With the overhang of geopolitical tensions between the US and China incentivising supply chain relocation to this region, Asean markets may be one of the biggest beneficiaries of global foreign direct investment (FDI) flow. According to the United Nations Conference on Trade and Development, FDI flow into Asean in 2022 made up over 17% of global FDI inflow. This figure represents a doubling of the average annual share of global FDI flow into Asean throughout the 2010s, which stood at about 8%. In addition to that, a rising middle-income population, youthful workforce and rapidly growing tech ecosystem should provide important structural growth drivers for the Asean economy moving forward.

Switching our focus to Malaysia, we think that consumer spending will be negatively impacted in the second half of 2024 as subsidy rationalisation takes its course. Some consumers may even hold back on spending in the first half of the year until there is clarity in terms of the implementation mechanism and potential impact on disposable income. Notwithstanding these impending headwinds, our recent conversations with companies and regulators have suggested growing interest, both among the locals and foreigners, in investing in Malaysia, with particularly interest in the energy transition, electrical and electronic and data centre space. Hence, we remain hopeful that the growth of FDI and domestic direct investment (DDI), which reached RM264.6 billion in 2022 (a 25% increase from pre-pandemic levels), can offset a potential softening of the consumer market in 2024.

It is noteworthy that, despite the lacklustre performance of the FBM KLCI in 2023, the Malaysian equity market has many hidden gems. Of the 1,012 companies listed on Bursa Malaysia, nearly 47% of them yielded positive returns. Another 23% of Malaysia-listed companies managed to deliver 20% returns or more as at Dec 11, 2023, despite numerous macroeconomic challenges. Twenty-eight Malaysia-listed companies even managed to deliver outsized shareholder returns of more than 100%. More importantly, these impressive returns were not just limited to small cap or penny stocks; a quarter of these companies boasted a market capitalisation exceeding RM1 billion.

The past few years have provided invaluable learning experiences for investors. So, what have we learnt? While macroeconomic considerations remain important, we see that in-depth, on-the-ground research has become even more crucial to making sound investment decisions in a rapidly evolving world. Lastly, we assert that attempting to time the market has always been, and will continue to be, a fool’s errand. We continue to believe that a good investment strategy still requires a longer-term time horizon to yield sustainable and fruitful results.

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