Market Summary For January 2012

After going through an extremely turbulent year and with almost all equity markets ending calendar year 2011 in the negative territory, we saw the equities markets rebounding strongly in the first month of 2012. The Asia ex-Japan and the emerging markets regions were the big gainers during the month with the MSCI Asia Ex-Japan and the MSCI Emerging Markets indices rising 6.4% and 7.0% respectively (in RM terms). Especially strong rebounds were seen in the India’s and Brazil’s equity markets, represented by the BSE SENSEX 30 and Bovespa indices which rose 14.7% and 13.5% respectively (in RM terms). At the same time the MSCI AC World Index ended January with 1.8% higher than the previous month (in RM terms). While Malaysia’s equity market was relatively resilient throughout 2011, it was the only market to return a loss in January with the FBM KLCI dropping 0.6% during the month.

Economic Growth Remains Modest in The World’s Largest Economy

One of the major announcements in the month of January was that US 2011 4Q GDP growth came in at an annualised 2.8%, which missed consensus estimates of 3.0%. 4Q’s growth was actually boosted by the restocking of inventories, which added 1.94 percentage points to the GDP. Excluding inventories, 4Q 2011 GDP growth was only 0.8%, a sharp deceleration from 3.2% seen in the previous quarter. For the calendar year 2011, GDP growth was 1.7% in 2011 as compared to 2010’s 3.0%.

Monetary Policy Easing To Fight Headwinds and Promote Economic Growth

While global economic growth is expected to moderate in this year, central bankers in the India and Thailand have eased their respective monetary policies in January. The central bank of India has reduced the cash reserve ratio (CRR), a reserve requirement that banks have to maintain with the Reserve Bank of India, by 50 basis points (bps) to 5.5% from 6.0%. On the other hand, the Bank of Thailand (BoT) in its 25 January 2012 monetary policy meeting cut the 1-day repurchase rate by another 25 bps to 3.0%. This is the second consecutive rate cut by BoT after it cut the rate by 25 bps in November. In the same month, the Federal Reserve in its Federal Open Market Committee (FOMC) statement kept the target range for the Fed Funds Rate at 0 to 0.25% and stated that the rate will likely stretch at least through 2014, lengthened from the previous guidance of “at least through mid-2013”. 

Greece Private-Sector Involvement (PSI) Talks Taking Their Own Sweet Time

The negotiation between Greece’s creditors continues in January and no deal has been finalised.  As private creditors are forced to take a hair-cut of between 65 to 70 percent, they refused to accept any yield lower than 4% on the new issuances for the debt swap. The International Monetary Fund insisted that Greece must reduce its debt burden to 120% of GDP by 2020 from current 160% before additional funding will be given to the country, the agreement on the deal between the private creditors and the government is especially important. If the negotiation fails, Greece will most likely default when EUR14.5 billion of bond redemptions due in 20 March 2012, which will trigger Credit Default Swap (CDS) payoffs to the lenders, an insurance in the event of a bond default. The negotiations will be the main focus in the financial markets going into February.

FSM Portfolios Review For January 2012

No Loss-Making Funds in The First Month of 2012

All the funds in our five portfolios were positive for the month of January. In the bond segment, AmBond and AmDynamic Bond continue to deliver stable returns of 0.70% and 1.33% respectively in the month.  Moreover, the Alliance Asian Bond Fund and AmEmerging Markets Bond unit trusts returned 0.40% and 2.80% respectively.

In terms of equities, BRIC and Asian unit trusts performed well in January. AmBRIC Equity Fund, which was the best performing fund in our portfolios, returned a positive gain of 8.44% in the month. Prudential Asia Pacific Equity, OSK-UOB Asian Growth Opportunities Fund and AmGlobal Emerging Market Opportunities delivered returns of 5.84%, 4.54% and 4.00% respectively. Even the worst performing equity fund, Kenanga Growth Fund was able to deliver a positive return of 1.02% in the month.

Maintain Preference On Equities Over Bonds

While the anemic global economic growth and the unresolved European debt crisis remain a concern to the financial markets, we maintain our “overweight” recommendation on equities rather than bonds. This is because equities valuation remain muted and at multi-year lows due to the weakened confidence of investors. On the other hand, global fixed income securities are currently at historical-low yields. Also, coupled with strong corporate earnings growth, we expect higher potential return from equities as compared to fixed income securities in 2012. As such, our current portfolios are “overweight” on equity (refer to Table 2).

Latest Portfolio Factsheets

The portfolios' factsheets are updated on a monthly basis and links for the most up-to-date factsheets are as provided below:

1. Conservative
2. Moderately Conservative
3. Balanced
4. Moderately Aggresive
5. Aggresive

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