US

The US corporate earnings period is slowly coming to an end. Among the 347 index constituents that have announced their Q3 results, more than 80% outperformed market expectations, and the overall market recorded a slight earnings increase YoY. Apple's quarterly results and sales exceeded market estimates, propelling the stock price upwards, and providing support to the tech sector. Coupling this with the better than expected US economic data, the S&P 500 hit a record high. Over the past 5 days ending Thursday, the Dow and S&P 500 gained 0.9%, while the tech based NASDAQ recorded a more significant increase of 1.3%. The FOMC meeting was held this week, interest rates were cut by 25 basis points as the market expected. The Fed Chairman Powell said that as long as inflation stays low, the Fed will not raise interest rates. According to the Bloomberg interest rate futures data, the probability of a rate cut in December has decreased to around 20%, which means that there is a low chance of another rate cut in 2019. In terms of economic figures, driven by strong consumer spending growth, the US GDP grew at an annual rate of 1.9% in Q3, surpassing the market expectation of 1.6%. US employment data will be released tonight, and we will get more data like services PMI next week.

Europe

As the Pound regained strength, the Pound denominated UK stock market fell under pressure, the UK FTSE 100 index fell more than 1% over the past 5 days ending Thursday, while the pan-European STOXX 600 index fell 0.16%. In the UK, after Prime Minister Boris Johnson accepted the EU's proposal to postpone the Brexit until 31^st January 2020, the House of Commons approved to hold the general election on 12^th December. With worries of a “No-deal Brexit” slowly ebbing out, the Pound regained strength and GBP/USD rebounded near the 1.30 level. In terms of economic data, the Eurozone's Q3 GDP rose 0.2% QoQ, outperforming expectations, while the October CPI rose 0.2% MoM, which was slightly higher than the expected 0.1%, indicating that the overall economic environment might have improved. The Bank of England will hold a meeting on interest rates next week.

China

As for China and Hong Kong markets this week, Hong Kong stocks posted a strong performance, while the mainland stocks underperformed. Over the past 5 days ending Thursday, the Hang Seng Index gained nearly 1%. At the beginning of this week, US President Donald Trump claimed that the Sino-US trade negotiations were progressing faster than planned. Unfortunately, the APEC summit was canceled by Chile, there are worries that the two powers might be unable to sign the first stage of the trade deal due to the cancellation. Trump later reassured that both sides are looking for new locations for the sign off. As we continue to get mixed signals from the official and Caixin manufacturing PMIs released this week, the foreign exchange reserves, import and export data releasing next week might offer a better insight into the economy.

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US

US stocks lagged behind global equities this week, the S&P 500 and NASDAQ were only up around 0.4% over the past 5 days ending Thursday, while the Dow recorded a 0.8% decline. US corporate earnings season continued, among the 192 index companies that have announced earnings, more than 80% companies posted positive earnings surprises, although the overall corporate earnings growth is down 0.4% year-on-year. This implies that although profits surpassed expectations, there is still non-existent growth. The market will focus on the upcoming “Super Data Week”: In addition to the preliminary Q3 GDP, non-farm payrolls, various PMI, and consumer confidence figures, the US Federal Reserve will announce the latest interest rate decision. According to the Bloomberg interest rate futures data, there is almost a 90% chance of a rate cut in October.

Europe

With declining chances of a “hard Brexit”, UK stocks rebounded for three consecutive days. Over the past 5 days ending Thursday, British stocks rose more than 2%, while the DAX also rose about 1.7%. Earlier, the House of Commons agreed to delay voting on Brexit arrangements, after which Prime Minister Boris Johnson’s second attempt on a Brexit agreement was voted down in the Commons. While sources reported that the EU will approve postponing the Brexit deadline, Johnson said that if Brexit is delayed until 31^st January, the UK will hold a general election. On the monetary side, the European Central Bank maintained its monetary policy unchanged at this week's meeting. President Draghi painted a pessimistic outlook of the Eurozone economy. Claiming that the growth momentum of the Eurozone has weakened and the overall inflation remains sluggish, it is necessary to keep the monetary policy dovish for a longer period. After the ECB meeting, the Euro slightly weakened against the Dollar. Next week, the Eurozone Q3 GDP, CPI and unemployment figures will shed more light on the European economic health.

China

The market sentiment on the Sino-US trade negotiations has improved. Earlier in the week, US President Donald Trump expressed hopes of signing relevant agreements with China in November, the White House economic adviser Kudlow also pointed out that it is possible to cancel the scheduled tariff plans in December. Later, it was reported that China is willing to purchase US$20 billion of US agricultural products within one year after signing the partial agreement, and will consider increasing further purchases. As the easing trade tensions boosted market confidence, mainland stocks performed better this week. The official Chinese PMI and Caixin PMI data will be released next week.

• Recent activities include : Attended The Private Wealth Asia Forum, Harris Fraser Hong Kong Property Market Outlook andInvestment Strategy Seminar and Press Conference, Taiwan Immigration Seminar etc.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

Investment Research -  Harris Fraser Group 

The Bloomberg Barclays Global Aggregate Bond Index and US Investment Grade fell 1.02% and 0.65% respectively, while Emerging Markets US dollar Bonds and US High-yield bonds rose 0.04% and 0.36%. As trade tensions somewhat eased over the month, risk capital moved out of the safer assets over September. That said, we do not think that the trade conflict is going to be truly resolved anytime soon due to fundamental differences, the economy would still face downward pressure, investors should continue to look into high quality bonds in the times of turbulence. With the drop in recent bond prices, this offers an opportunity to further increase the bond exposure in the investment portfolio

Even though the fed did cut interest rates in September, it is expected that there is more than 90% chance that Fed will take at least another cut before the end of the year to support the economy. Sources also suggested that the board is currently considering expanding the Fed balance sheet again soon. With the global central banks entering a possible rate cut cycle and adopting generally dovish policies in light of a possible economic downturn, increasing bond exposure can also capture the capital appreciation.

As we get into the last quarter of the year, we expect heightened volatility and greater downside risk in the equity markets. In light of the late cycle potentially ending, investors should prioritise quality over yield, with a larger portion of fixed income investments held in investment grade bonds, which can help limit volatility while still improving risk adjusted returns.

Source: Bloomberg, Harris Fraser, Data as of :7-10-2019

One of the more notable policies enacted in the EM sphere was the unexpected corporate tax cut in India, amounting to more than US$ 20 billion. This has created a short-lived euphoria in the India markets, rising almost 8% over 2 days. Similar policy stimulus and structural reforms are taking place across the globe, such as the recent pension reform bill in Brazil, to counteract against the effects of the receding global economy via boosting confidence and investment. This is positive for EM going forward as the structural reforms offers great opportunities for their markets.

Yet warning signs continue to exist. The ongoing trade war remains one of the biggest threats to the EM economy, represented by the falling global manufacturing PMI, being in the downtrend and remaining in the contraction zone for 5 consecutive months. A recent regional outlook report released by the Asian Development Bank has scaled down the growth forecasts of most of the economies in the region, citing a more intensified impact from the trade war fallout. The Bank expects the effects to persist well until 2020, cutting forecasts by 0.3% for developing Asia in 2019 and 0.1% in 2020

Despite the shaky fundamentals globally, we believe that the trade war beneficiaries like Vietnam and Taiwan should continue to benefit from the effects of the trade war as production lines move out of China. Caution is needed before investing in EM due to the higher systematic risk.

 China's overall economic data was still somewhat mixed. In September, both the official manufacturing PMI and Caixin China Manufacturing PMI posted positive surprises, coming in at 49.8 and 51.4 respectively. Yet, growth in the manufacturing industry in China is still expected to be relatively muted. While the August PPI of -0.8% was slightly better than market expectations, it remains in the contraction zone, together with the falling export figures of -1.0% YoY in August, this could mean further weakening in the exporting sectors.

After raising the currency manipulation controversy in August, it was reported that the White House is considering limits to fund flows into China or Chinese related entities via 3 major measures. The measures include limiting Chinese company’s weighting in various Indices, limiting pension funds investment in China, and limiting or even delisting ADRs currently listed in the US exchanges. While these measures do seem farfetched at the moment, the reports could possibly outline future US actions to be taken in order to further pressure China in the trade war.

As the downward pressure continue to mount, the Chinese government has once again introduced policies to stimulate the economy. The People's Bank of China announced further lowering of reserve ratios in early September, releasing RMB 900 billion to the system. While the act is likely going to provide support to the markets, many question the incremental benefits of further cuts. With the large level of cash released back to the system, some experts are also concerned over the rising inflation as the CPI is currently on the higher end. The Premier of the State Council Li Keqiang reiterated the importance of “Six Stabilities” at the State Council, and further supported the local government bond issuances as means to boost the local economy. In light of the recent developments, we continue to suggest investors to stay cautious with regards to the possible economic growth drop off.

Source: Bloomberg, Harris Fraser, Data as of :7-10-2019

While the Nikkei Japan Service PMI was 52.8, Manufacturing PMI further worsened and stayed in the contraction range. Japanese corporate confidence remained weak, machine tool orders fell 37.1% YoY in August, and industrial production went negative YoY once again. Overall, the Japan-wide manufacturing sector’s outlook continues to stay negative. Although CPI, household spending and cash earnings figures remained low, retail sales is surprisingly strong as the sole saving grace, which could be further bolstered by the ongoing Rugby World Cup held in the country. That said, the underlying issues with the Japan economy still exist, the existing trend continues and we have yet to see significant recovery in the Japanese economy, thus we retain our neutral rating for the market.

Sources reported that Japanese Prime Minister Shinzo Abe will not hold a meeting with Korean President Moon Jae-in during the ASEAN conference later this month, further plunging the relations into deep freeze. On the other hand, US president Trump claimed that he had reached agreement with Japan on a “mini trade deal” with agricultural products in focus. While the “deal” was not an official document, the gesture does show further improvement in relations between the two countries, with possible further amendments to be made to the “deal”. This does come in timely as Japan faces stronger headwinds in the economy, not only from worsened relations in Korea, the ongoing trade war, but also the increasing value-added tax from 8% to 10% starting in October. It is expected that the economy, especially industrial and retail sectors, will be more impacted in light of the recent events. Thus, investors should reconsider the situation more carefully and could consider reducing exposure to the region.