US

Market optimism was boosted by President Trump signing the economic stimulus bill, all three major US stock indices closed at record highs. Although the bill was signed, US Senate Republicans blocked the other bill aimed at raising pandemic stimulus checks from US$600 to US$2,000, such that the bill is unlikely to be passed in the near future. In addition, according to the annual rotation plan of the Federal Open Market Committee (FOMC), the new four members are more dovish in their policy orientation, which means that the chances of a tightening monetary policy in 2021 will likely be lower. With the Fed's balance sheet expanding to a record high of US$7.4 trillion as a result of the ongoing quantitative easing, the market will be watching closely to see if its accommodative monetary policy will be extended in 2021. It is also worth noting that Bitcoin rose further, breaking the US$29,000 level as the US Dollar index fell below 90, spot gold prices also briefly recovered to almost $1,900 per ounce. Next week, the US will release December employment data, ISM manufacturing and service data, and the Fed will also release the December interest rate meeting minutes.

Europe

The House of Commons has approved the Brexit trade agreement, the news contributed to the positive sentiment in the European equity and FX markets. Over the past 5 days ending Wednesday, the UK, French, and German equity indexes rose 2.17% to 3.57%, while the pound has risen further to around 1.3650 against the US dollar. The trade deal was approved by the UK Parliament in just one day, ending the four-year journey of leaving the European Union. In Europe, the epidemic remains severe, with the number of daily COVID deaths in Germany surpassing 1,000 for the first time, and the mutated COVID virus strand continues to bring further uncertainty to investment markets. The Eurozone will release data on the unemployment rate in November and the Consumer Price Index in December.

China

The Hang Seng Index surged on the last day of the year and broke through the 27,000 level, the index closed 3.4% higher over the short week, but Hong Kong equities as a whole were still down 958 points, or 3.4%, throughout 2020, HSCEI was also down 3.4% over the year. China's recent economic data showed soft patches, with the official manufacturing and non-manufacturing PMIs coming in at 51.9 and 55.7 respectively in December, both down from the previous month. 10-year government bond interest rates are expected to fall for the first time in nine months, signalling a relief in funding pressures. Next week, the Caixin manufacturing and services PMIs for December will be released.

 US

Just as the first vaccines started to be administered around the world, the discovery of a second, more contagious strain of the virus in the UK triggered panic in the markets, with many European countries cutting off traffic to and from the UK. Nonetheless, as the year draws to a close and the festive mood kicks in, trading has tapered off and market volatility has been somewhat muted. The three major US stock indices ranged from -0.08% to 0.89% over the past 5 days ending Wednesday. The US Congress passed a US$900 billion stimulus bill, but President Donald Trump declined to sign off, stating that the direct payouts were too small. He also vetoed the $740 billion National Defence Authorisation Act, claiming the bill failed to include critical national security measures. House Speaker Nancy Pelosi plans to vote on the $2,000 personal aid cheque proposed by Trump, and called for bipartisan support. On the economic front, the US consumer confidence index unexpectedly fell to a four-month low in December, reflecting continued concerns about the economic outlook. Next week, the US will release the National Home Price Index in December.

Europe

The UK saw a record number of new COVID cases and also discovered a new COVID strain from South Africa, which officials say may be more contagious. As the mutated virus strain in the UK may have already spread to Germany, France, and Switzerland, concerns about the European economic recovery slowing down have increased. European stock markets, led by the UK, came under pressure, with the FTSE 100 index falling by 1.14% over the past 5 days ending Wednesday. On the other hand, the Pound surged in response to reports of a new proposal on the fisheries issue, where the UK and EU could potentially agree on a Brexit trade deal framework, the Pound recovered to 1.355 against the US Dollar. The market is watching the development of the epidemic in Europe and the progress of the negotiations between the UK and the EU closely.

China

The Hang Seng Index was down 0.42% for the week, as Hong Kong market is closed on Friday following a half-day market on Thursday due to Christmas. It was reported that Alibaba is under investigation by the mainland regulators and that its Ant Group had received a notice of inquiry, weighing on the performance of the e-commerce and Internet-related sectors, the Hang Seng Technology Index in particular fell sharply by 1.35%. Mainland stocks fared better in the short week, as the CSI 300 Index rose slightly by 0.14%. The World Bank remains bullish on China's economic performance next year, with a growth forecast of 7.9%. Next week, China will release data on industrial profits for November and the official manufacturing index for December.

12월 21 일과 24일 해리스 프레이저 홍콩 사무실의 업무시간은 오전 9시부터 오후 4시이며, 크리스마스 휴일 (2020 년 12 월 25 일 ~ 12 월 27 일)에는 휴무입니다. 휴일 동안 접수된 모든 요청은 다음 영업일 (12 월 28 일)에 처리됩니다.

또한, 12월 31일 해리스 프레이저 홍콩 사무실의 업무 시간은 오전 9시부터 오후 4시이며, 연말 연시 (2021 년 1 월 1 일)에 문을 닫습니다. 휴일 동안 접수 된 모든 요청은 다음 영업일 (2021 년 1 월 4 일)에 처리됩니다. 불편을 드려 죄송합니다.

행복한 크리스마스와 새해 되시기를 바라며, 귀하와 귀댁에 건강, 행복 및 번영을 기원합니다.

The rally over the month was led by lagging cyclical sectors, which have been underperforming the market since COVID hit. With the vaccine seen as a magical solution to the return to normal, relevant sectors surged given that production and consumption is expected to be on the rise. The vaccines should also provide a better case for holding the delayed Olympic Games in 2021, which could provide the much-needed boost to the struggling economy.

However, we remain sceptical that the economy will recover to the level that justifies the market rally, as the issues contributing to the weak fundamentals have not dissipated. Moreover, questions remain over the economic benefits holding the Olympic Games, as travel restrictions are not likely to be fully lifted by mid-2021. The vaccines production timeline will likely only meet the world’s population by 2022. With the valuation levels elevated, the upside is relatively limited in the short term, we would still advise against overweighting Japanese equities considering the comparatively larger downside.

 US

US equity markets continue to edge higher over the week, largely on the back of vaccine optimism and anticipation of economic recovery, despite disappointing recent economic figures. Over the past 5 days ending Thursday, all 3 major equity indexes gained 1.01-2.89%. The Moderna COVID vaccine is given the green light by the FDA advisory panel, hopefully following footsteps of the BioNTech-Pfizer vaccine in getting nationwide approval for deployment, which should provide a stronger case for an earlier recovery. On the monetary front, the Fed made no changes to the existing monetary policies, Fed chairman Jerome Powell mentioned that the Fed expects a faster than expected growth in 2021, and a lower unemployment rate. Economic figures on the other hand remain disappointing, retails sales went negative MoM ahead of the holiday season, initial jobless claims climbed higher, and the Philadelphia Fed Manufacturing Index in December turned out to be far lower than the market consensus. However, markets and businesses remain hopeful on the vaccine induced recovery, as indicated by the higher manufacturing and services PMI. Next week, we will see a shorter trading week due to Christmas, but GDP figures for Q3, Michigan consumer sentiment and core durable goods orders can shed light on status on the economy.

Europe

Vaccine news continue to contribute to the positive market sentiment, the UK, French, and German stock markets continued to edge up over the past 5 days ending Thursday, logging in gains of 0.07-4.22%. Epidemic news continue to take the centre stage, with French president Emmanuel Macron tested positive for COVID, forcing quarantines for numerous European politicians. Epidemic remains serious in Europe, and the German government has already announced a stricter lockdown that stretches over New Year, which is expected to dampen business sentiment in the traditional high season. As for Brexit matters, trade talk deadlines have extended until the end of the year, but UK Prime Minister Boris Johnson noted that there is a high possibility for a no deal Brexit by the end of the year. For economic indicators, Eurozone had good numbers, with various PMIs exceeding market expectations. Next week, the Eurozone will publish more figures on business sentiment and consumer confidence.

China

China A-shares improved, with the CSI 300 Index rising 2.26% for the week, while Hong Kong stocks did not see much movement over the same period. Industrial production rose at a slightly faster pace to 7% YoY in November, while retail sales rose 5% YoY over the same period, up from 4.3% in the previous month, and fixed investment rose 2.6% YoY over the same period, up from 1.8% YoY last month. The market will focus on the key policies mentioned at the Central Economic Work Conference.

The largest moves in the market came from high yields. Anticipating a full recovery in the economy early on next year, credit spreads of high yields narrowed over the month, as a stronger economy reduces the risk of default among high yield issuers. The anticipated extended fiscal support from global governments also serves to support the businesses through the hard times ahead.  Apart from improving fundamentals, global monetary policy staying loose also helps support bond prices in the mid to long-term.

As for the outlook, we remain positive on fixed income overall as downside is limited with the ongoing support from quantitative easing and prolonged low interest rates across major central banks. We continue to rate high yields higher due their more favourable risk-to-return payoff, valuing Asian high yield names more due to 1) stronger economic fundamentals, and 2) higher risk premiums for the same level of credit risk. Quality remains the key focus when considering high yields, we would favour issuers with stronger balance sheets and operational cash flow, and avoid ones that require additional governmental support to stay afloat.

Although daily COVID cases in certain countries remain elevated, markets have already looked past the current situation and decided to price in a longer-term performance. In particular, some of the more prominent equity laggards such ASEAN markets, Russia, and Brazil saw double digit gains in the month. The gains were largely fuelled by the market’s shift to cyclicals and value stocks as optimism runs high, this is accompanied by the Biden victory in the US elections, hinting at policy direction reverting back to the pre-Trump era, which would likely favour emerging markets in terms of political risk.

With the economy entering a faster rebound starting from 2021 onwards, structural growth in EM should likely outpace developed markets. The recent fundamental economic indicators also reflect the recovery in emerging markets, as leading indicators remain in the expansionary zone. Although the market remains at risk of a short-term correction due to the rapid surge in the indexes, we should reasonably expect EM equities to perform in 2021 with the improved base scenario.

Freshly imposed lockdown measures did manage to taper off the peak in daily infection figures for the adopting countries, but ones without still see their figures setting new highs by the day. The impact is evident in the weaker economic fundamentals, as the Eurozone services PMI continue to slide, marking the third consecutive month in the contraction zone. Unless the epidemic situation miraculously improves in the short term, the early rebound could be considered a kneejerk reaction to the recent positive news.

Which brings us to the key factor in the equity surge over the month – COVID vaccines. The market seems to be setting their sights on a return to normal by 1H 2021. However, global vaccine production would likely only meet the global population by 2022, which could delay the actual reopening. We believe that the idea of a ‘K-shaped’ recovery still holds true, certain sectors such as oil & gas and financials, should see limited improvement even if the economy recovers due to structural reasons. Thus, selection remains the key, investors should continue to focus on themes and sectors with better growth prospect in the mid to long-term.

Just comparing the 2 largest economic superpowers now and we can notice that the Chinese economy is doing much better than the American one, as indicated by the low but positive growth in 2020, and a much higher growth expectation in 2021. Economic fundamentals remain strong, high frequency data including various PMIs, industrial production, and exports alike continue to show expansion YoY, which underpins the strength and resilience of the Chinese economy. As the macro factors do favour emerging markets in the short to mid-term, this forms our base for a better expectation of the Chinese equity performance outlook.

In particular, certain trends are expected to produce outperformance in the short to mid-term. As the Chinese investment market is heavily affected by governmental policy direction, industries promoted by the government as a strategic focus under the ‘dual circulations’, such as semiconductors and other disruptive technologies, or sectors that are the key to China’s migration to an advanced economy, such as e-commerce and other consumption related sectors, may see excess growth and increased capital inflows over the next few years, these should be the focus in the portfolio for the coming year.

Biden is essentially announced the winner of the election, Trump has also announced the official commencement of the transition procedure, signalling an end to the whole post-election fiasco. While the Democrats have control over both the Presidency and House of Representatives, if the Republicans win at least one of the seats in the Georgia Senate run-off, they will maintain control over the Senate. This would likely block the more radical policies from the Biden administration, which should be positive for the overall market.

Moving on, the focus is gradually shifted back to the economy, market sees improvement in the outlook with a number of vaccine leads showing breakthrough. However, questions still remain regarding potential mid to long-term side effects, the actual rate of production, and potential resistance from the anti-vax community, these could pose as obstacles to a speedy full reopen. With the current valuations at a higher level, investors should stay cautious and selective, choosing quality names that doesn’t only focus on the impulse of economic reopen, but rather has a larger growth potential.