Research  
US Sino Trade Conflicts Hammer Asian Equity Funds October 18, 2018
In this article, we review the top and bottom performing equity funds on our platform over 3Q18.
Author : Tan Wei Yine


 Malaysia Equity Funds: Same Country, Different Stories

Market Performance in 3Q2018

Trade uncertainties have continued to dominate the investment landscape across 3Q2018. On top of that, investors were dealt with yet another hard hand within emerging markets (EM). The recent episodes of currency crises across Turkey and Argentina may have ignited bad memories of the 1997 Asian Financial Crisis, which jolted volatilities among EM equities and sent several currencies of our Asian and EM peers with twin-deficits southwards against the greenback (see Figure 1).

Figure 1: 3Q2018 currency performance against USD.

Rotating our view towards developed markets, economic data and numbers are still painting a robust economic picture in the US, which helped materialise the expected rate hike from the Fed last month. Across the Atlantic Ocean, growth data and consumer spending have moderated on European’s front. Back in Asia, Japanese corporates have witnessed positive momentum in their earnings together with economic growth.

Looking into returns, global equities reversed their losses from 1H18 and clocked 6.5% return over 3Q18. US equities drove develop market equities, with S&P 500 posting a commendable 10.0% return over the quarter. Japan was second in line to finish the quarter with 8.4% gains. Lastly, European underperformed its peers and posted a 3.0% return.

Moving towards Asia, MSCI Asia ex-Japan finished the quarter at 0.1%, and its emerging market counterpart returned 0.6% over the same period. The outperformers were notably Thailand, Brazil along with Russia, while their North Asia counterparts such as China and Hong Kong lagged behind.

Figure 2: Performance of global equities over 3Q2018.

Overall Fund Returns in 3Q2018

As of 30 September 2018, there are 208 equity funds on our platform with full period return in 3Q2018. 160 (76.9%) of the equity funds clocked positive returns while 48 (23.1%) of the funds posted losses. On average, these equity funds have posted 2.8% gain across the period.

[All stated returns are total returns including dividends and in MYR terms unless otherwise stated, excluding wholesale funds and PRS funds]

Figure 3: 3Q2018 returns distribution for equity funds.

Top Performing Equity Funds

Table 1: Top 10 Performing Equity Funds

Ranking
Fund Name
Category
YTD (%)
3Q2018 (%)
1 InterPac Dana Safi
Malaysia-General
-12.6
16.1
2 CIMB-Principal Small Cap Fund
Malaysia-Small to Medium Companies
-5.5
15.5
3 InterPac Dynamic Equity Fund
Malaysia-General
-17.0
15.5
4 KAF Islamic Dividend Income Fund
Malaysia-General
2.4
15.4
5 BIMB i Growth
Malaysia-General
-2.2
14.0
6 CIMB Islamic Small Cap Fund
Malaysia-Small to Medium Companies
-8.3
13.5
7 PMB Dana Mutiara
Malaysia-General
-5.3
12.6
8 MIDF Amanah Strategic Fund
Malaysia-Small to Medium Companies
-9.8
12.2
9 Manulife Investment U.S. Equity Fund
US-General
10.0
10.1
10 PMB Shariah Aggressive Fund
Malaysia-General
-14.1
9.9

Source: Bloomberg, iFAST Compilations. Data as of 30 Sep 2018. Returns in MYR terms with any income or distribution reinvested.

Limelight Back on Small-to-Medium Cap Companies on Ringgit Weakness

If one could recall, we saw local big cap stocks outperforming small-to-mid cap stocks at the beginning of the year. This was due to the persistence in the strength of the Ringgit that has affected the earnings margin and profitability of many manufacturing and export-oriented companies, which makes up significant portion of the small-to-mid cap segment within local bourse.

Figure 4: Ringgit has depreciated against the greenback post GE14.

However, the sell-off in Ringgit post GE14 (see above) has placed these small-to-mid cap counters back in the limelight again. The on-going trade disputes between US and China have not impede exports growth across the Southeast Asia region just yet. Additionally, Prime Minister Mahathir Mohamad and other economists have mentioned that Malaysia and a few other economies within the region could stand to benefit from trade war as global producers and manufacturers establish new manufacturing base and supply chain out of US and China, and investors may have drawn some relief from these opinions.

Bottom Performing Equity Funds

Table 3: Bottom 10 Performing Equity Funds

Ranking
Fund Name
Category
YTD (%)
3Q2018 (%)
199 Affin Hwang Select Asia (Ex Japan) Opportunity Fund - MYR
Asia ex Japan-General
-6.0
-5.2
200 Libra Consumer and Leisure Asia Fund
Asia including Japan-Consumer
-5.8
-5.6
201 RHB China-India Dynamic Growth Fund
China India-General
-10.3
-6.0
202 RHB Asian Growth Opportunities Fund
Asia ex Japan-Small to Medium Companies
-12.9
-7.6
203 RHB Asia Consumer Fund
Asia ex Japan-Consumer
-14.5
-8.8
204 CIMB-Principal China Direct Opportunities Fund - SGD
China-Small to Medium Companies
-
-10.3
205 CIMB-Principal China Direct Opportunities Fund - MYR
China-Small to Medium Companies
-
-10.3
206 CIMB-Principal China Direct Opportunities Fund - USD
China-Small to Medium Companies
-
-10.4
207 RHB Gold And General Fund
Global-Gold & Minerals
-14.4
-12.3
208 Precious Metals Securities
Global-Gold & Minerals
-16.1
-12.4

Source: Bloomberg, iFAST Compilations. Data as of 28 Sep 2018. Returns in MYR terms with any income or distribution reinvested.

Asian Funds Suffer From US-Sino Trade War

Asian funds lost value in 3Q18, primarily due to their significant exposure to Chinese equities. Chinese stocks have slid for the second straight quarter. Trade tensions have escalated, given that the US has implemented several rounds of tariff measures and China retaliated with moves of its own. At the same time, Chinese macroeconomic data disappointed.

The fall in share prices across Chinese technology companies weighed heavily on funds have significant exposure to this sector (see Figure 5). Profit margins at the technology giants are being squeezed by business segments. Particularly on Tencent, government restrictions on mobile and video games have clouded its earnings prospects and its share price was affected negatively.

Figure 5: Chinese technology companies have weighed indices performance over 3Q18.

Although Chinese authorities have successfully slowed the pace of non-bank credit growth, the aforementioned external conditions have led them to shift their attention towards fiscal stimulus and credit easing within conventional banking channels to stimulate domestic growth. This should provide some support for those countries that depend on Chinese demand going forward.

Takeaway

Trade war noises are likely to simmer going forward as US government officials prepare for mid-term election in November. Nevertheless, the investment landscape is still susceptible to numerous uncertainties. Just last week, we have witnessed a significant sell-off across global and domestic equities on the account of both domestic and external factors.

We are now looking at a mismatch between depressed pricing and still-solid fundamentals. Fearful times like this serves as a good bargain hunting opportunity for investors, as it allows them to seek undervalued quality gems lying across the investment universe. We are maintaining an overweight stance in equities vis-à-vis bonds, and the recent correction has brought valuation levels of Asian and emerging market equities back to an attractive spot. For investors who wish to tap into these growth opportunities, they could consider adding positions via top consistent performing funds on our platform.

See: FSM 10th Anniversary Promotion


This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus, product highlight sheet (PHS), and if necessary, consulting with financial or other professional advisers. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Amongst others, investors should consider the fees and charges involved. The relevant prospectuses have been registered and lodged with the Securities Commission. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should be highlighted of the fact that the value of their investment will remain unchanged after the distribution of the additional units. All applications for unit trusts must be made on the application form accompanying the prospectus. The prospectuses and PHS can be obtained from Fundsupermart.com. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.