Year-To-Date 2nd Quarter 2023 Market Review
Risk assets continued to perform in 2nd Quarter 2023 as US regional bank runs were quickly contained and global central banks were expected to moderate interest rate hikes.
Emerging Markets excluding China also received the much needed reprieve and performed in-line with Developed Markets when measured in domestic currencies. Nevertheless, interest rate driven US dollar strength versus slumping Emerging Market currencies is a great reminder for investors to maintain a globally diversified portfolio to achieve long-term wealth.
Performance of Major Indices and Commodities
Source: Morningstar, LBMA
AI mania fueled a rally in US tech companies that resulted in the Morningstar US Market Index gaining 16.5% for 1H23.
Japan also recorded double digit gains as the Bank of Japan continued to pursue a friendly interest rate policy.
On the Emerging Markets front, Brazil rallied the strongest as recovery hopes emerged from the subsiding political uncertainty.
Asean markets such as Malaysia, Philippines, and Thailand were negatively affected by weak currencies led by the depreciation of the Chinese Yuan.
In the Fixed Income markets, despite the relentless interest rate advance, which usually causes falling bond prices, both the Global Core and US Core bond markets managed to deliver positive returns. This suggests that through the rate hike cycle that began in March 2022, there comes a point where high interest income can outweigh any price depreciation.
In the commodities space, gold emerged as the top performer as investors sought out safe haven assets. Gold, however, pales in comparison to bitcoin which almost doubled this year amidst the perception that the traditional financial system was in disarray as concerns over the stability of traditional banks and potential bank runs prompted investors to seek alternative decentralised assets. On the other hand, oil, considered a proxy for economic growth, slid due to disappointing data from China and its wider repercussions for global economic growth.
Portfolio Performance As of March 2023
Total Returns in USD
Source: Morningstar
The annualised returns for P04-P10 continued to track its underlying benchmark closely. As for P01-P03, the performance was affected by returns in Malaysia's fixed-income mutual funds relative to Malaysia's fixed-income index (Markit iBoxx ALBI Malaysia Total Return Index)
Total Returns in MYR
Source: Morningstar
The total returns were higher as Ringgit depreciated by 5.1%, 11.0% and 10.6% on a 1-year, 2-year and since Aug 2020 against the USD. Whilst on a YTD 2023, Ringgit against the USD was also depreciated by 5.9%.
Views and Recommendation
We foresee growth moderation ahead and core inflation is likely to cool, albeit at a very slow speed. Absence of a recession in Developed Markets and stubborn inflation should keep interest rates high for a while. It remains to be seen if such high interest rates will cool down heated developed economies.
Disclosures
Past data and performance do not indicate future performance. Actual individual investor performance will vary depending on the initial investment, amount and frequency of contributions, allocation changes, taxes and fees during the time frame considered.
