Multi-Asset Weekly: Middle East Tensions Spur Decline in US Equities
US equities fell amid escalating tension in Middle East. On Thursday (4 Apr), the US equity markets experienced a sharp decline as concerns of potential escalation in the Israel-Hamas conflict sent o...
投資總監辦公室8 Apr 2024
  • Equities: US equities experienced a sharp decline over rising tensions in the Middle east; China equities rose on positive economic data
  • Credit: US Treasury’s influence over the supply of short-term bills versus long-term bonds have quietly neutralised the increased duration risk that QT supplies, damping the effects of curve steepening
  • FX: Amid EUR’s resilience, the DXY failed to gain traction despite constructive sentiment towards the USD
  • Rates: UST yields receive a boost as NFP beat expectations; Recent data suggesting a more calibrated easing cycle amidst rising no-landing risk
  • The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; Japan Industrial Production
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US equities fell amid escalating tension in Middle East. On Thursday (4 Apr), the US equity markets experienced a sharp decline as concerns of potential escalation in the Israel-Hamas conflict sent oil price surging above USD90 per barrel. The S&P 500, Dow Jones, and NSADAQ notched weekly losses of -1.0%, -2.3% and -0.8% respectively. The upcoming US CPI data is likely to dominate markets sentiment this week as investors assess its implication on Fed rate cuts decision.

China equities, on the other hand, rose as data signalled signs of the economic recovery. The Caixin Manufacturing Index rose to 52.7 in March, marking its fifth consecutive expansion. Furthermore, the official NBS Manufacturing PMI also came in higher than expected (50.8 vs 49.1 consensus) and entered expansionary territory for the first time since Sep 2023. These robust data heighted expectations for China’s economic resurgence. The SHCOMP and CSI 300 both gained 0.9% for the week.

Topic in focus: India’s homegrown opportunities. India equities have been resilient thus far and can be expected to sustain its strong performance. To navigate the elevated valuations while capitalising on attractive growth prospects, we recommend exposure to India via mid/small cap mutual funds which can capture the opportunities brought about by the fifth largest economy in the world by nominal GDP, and yet with significant room to grow as it lags in per capita income. These funds are particularly appealing to domestic investors given ample liquidity in the economy and offer better returns on a risk adjusted basis. Recent regulatory cautions regarding such funds are expected to prompt enhanced risk management practices.

Key sectors contributing to the growth in the mid/small cap space include technology, consumer goods, and services. India’s financial sector, including banks and non-banking financial institutions, play a crucial role in supporting economic activities. We see bright spots in well-established financial institutions as well as fintech companies innovating in the sector. In this digital transformation era, companies involved in engineering and research and development (ER&D), as well as those benefitting from AI and digital tech spend should perform well. A rising middle class and increasing urbanisation trends in India contribute to the growth of the consumer goods and services sector.

Download the PDF to read the full report which includes coverage on Credit, FX, Rates, and Thematics.



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