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Q2 2019 Market Update: Cautious Optimism


16 April 2019

q2-2019-market-update-cautious-optimism

Following a strong first quarter rally across major indices, the S&P500 continued its climb into Q2 closing at 2867.24 (as of 02/04/2019) and is a mere 3% short of its all-time high of 2929.67 on 17th Sept 2018. The Nikkei225, FTSE100 & Singapore STI index also bucked the trend and is up between 10 to 15% till date. However, one of the biggest beneficiaries of the Q1 2019 rally has got to be the Chinese stock market – with the Shanghai Composite Index (SSE) charging ahead with an impressive 28% recovery after a tumultuous 2018 dogged by the Sino-US trade wars.1

Positive Sentiments with a tinge of Caution

One of the major catalysts of the best Q1 rally we have seen in the last decade has got to be the easing of monetary policy by Federal Reserve Chairman Jerome Powell. On 20th March, Powell reduced their forecast to zero rate hike in 2019, one hike in 2020 and none in 2021 in view of the slowing US economy. Some Fed watchers, however, think that there is even a possibility of a rate cut next.2

On the trade front, US and China drew closer to finalizing their trade agreement, with China's vice-premier Liu He meeting US trade representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin in Washington. If talks are successful, it could pave the way for an eventual Summit between Donald Trump & Xi Jinping. Of course, there is also the possibility that it could end abruptly and lead to a new escalation in tariffs, sending ripple effects to the markets.3

Fueling the Chinese equities bull market is a combination of massive tax-cuts to boost private demand and reduce cost for companies4, increasing in weightage of China A Shares in the MSCI Indexes by increasing the inclusion factor from 5% to 20%5, in addition to the progress made on the US-China trade war. Despite the positivity, recent economic data coming out of China has yet to catch up with the strength of its stock market and it remains to be seen if the Chinese government's interventions would boost its economy.

Other Markets to Watch

UK —
In yet another setback for British PM Theresa May, her Brexit deal was rejected by Members of Parliament again for the third time after an extension from the initial 29th March deadline to 12th April. It is likely that May would have to seek another extension from the European Union.6  The UK FTSE100 is up 9.9% year-to-date.

Thailand —
Thailand held a long-awaited general election on 24th March after five years of military rule. As of now, no single party has emerged as a clear winner, with the pro-military Palang Pracharat party leading by number of votes, and the anti-military Thaksin-linked Pheu Thai party leading by number of seats in government. While the final outcome will only be released in May, the second-largest economy in Southeast Asia looks set to face a political gridlock that could hinder policy-making and hurt the Thai economy.7   The Thailand SET Index is up 5.2% year-to-date.

Indonesia —
Counting down to the Indonesian General Election on 17th April, incumbent President Joko Widodo continues to maintain his lead in polls against 3rd time rival Prabowo Subianto, though his lead have narrowed by 0.5% to 56.5%, according to Roy Morgan Research. Jokowi leads in Central and East Java while Prabowo leads in Jakarta, West Java and Sulawesi.8  The Indonesian JCI Index is up 4.7% year-to-date.

India —
The world's largest exercise in democracy will kick off on 11th April where up to 900 million people will vote to choose India's next leader and the results will be declared on 23rd May. Narendra Modi and his Hindu nationalist Bharatiya Janata Party (BJP) are seeking re-election after a landslide 2014 victory while the main national opposition party is the Congress, led by Rahul Gandhi, scion of India's most influential political dynasty.9  The Indian SENSEX Index is up 7.9% year-to-date.



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Information is correct as of 16/04/2019.