Most Asian currencies experienced significant movement in Q3 following the US Federal Reserve's confirmation of a rate cut in mid-September. The Malaysian ringgit led the region, climbing 14.4% against the dollar during this period, marking its best performance on record. Analysts attribute the ringgit's strength to narrowing interest rate differentials with the US, improving trade performance, and attractive asset valuations. Sumitomo Mitsui Banking Corp noted that Malaysia’s current account surplus, a neutral stance from the central bank, and stable economic fundamentals are supportive of the currency. Additionally, foreign fund flows have been favorable, with global investors pouring a cumulative USD 2.5 billion into the country’s bonds in July and August, along with USD 1.2 billion in local equities since the beginning of July. The Thai baht also reached its strongest level in 30 months, appreciating 13.4% against the dollar last quarter. This performance was driven by a stabilizing domestic economy and improving political conditions. Several other Asian currencies, including the Chinese yuan and Indonesian rupiah, are also showing appreciation against the dollar following robust quarterly performances. If the Fed continues its rapid rate cuts as the market expects, there should be further opportunities for Asian currencies to strengthen.

In August, the Vietnamese dong appreciated by 1.56% against the US dollar, marking its strongest gain in 20 months. HSBC strategists attribute this strengthening to several factors: recent US Consumer Price Index (CPI) data, which increased the likelihood of a Federal Reserve rate cut in its September meeting, and Vietnam’s trade surplus of USD 4.5 billion for the month—the highest in four years. Looking ahead, the dong’s continued strength is supported by several favorable conditions, including a potential accelerated rate cut cycle by the US, narrowing negative spreads between the dong and dollar interbank rates, ongoing net foreign exchange inflows from the trade surplus, steady foreign direct investment, and consistent remittances. With the strengthening currency and robust economic fundamentals, the Vietnamese stock market performed well in August, with the S&P Vietnam Core Index rising by 3.73%. Real estate stocks stood out as three amended laws—Land Law 2024, Housing Law 2023, and the Real Estate Business Law 2023—took effect last month. The market is now anticipating the resolution of the "prefunding" issue, which is a crucial factor for potential market upgrades by major index providers.

Chinese housing market is showing signs of improvement with policy support. In July, new home prices in China experienced a modest decline, with a decrease of 0.65% month-over-month, which was slower than the drop observed in June. Among the tier-one cities, Beijing was the only one to witness a mild decline in new home sales. According to data from China Real Estate Information Corp., Guangzhou saw a significant increase, with sales volume rising by 31,696 sqm to 132,617 sqm, while Shanghai and Shenzhen recorded a gain. China is considering allowing local governments to issue special bonds to buy unsold homes. Over 10 city governments have also relaxed or eliminated new-home price guidelines to stimulate demand. Beijing's housing bureau launched a pilot program last month to encourage homeowners to swap old homes for new ones. Xiamen has recently amended its property policies, enabling individuals who own property in the city and meet specific criteria to apply for residency. In Hong Kong, the MPFA will be relaxing investment regulations to permit MPF funds to invest in Real Estate Investment Trusts (REITs) listed in Shanghai and Shenzhen when they are added to the Stock Connect scheme. Developers are also showing signs of relief, with Longfor Group repaying ~RMB 2 billion to bondholders whilst Kaisa announcing substantial progress in restructuring its offshore debts. Investors interested in the recovery of the China property market may consider investing in a basket of bonds, such as our Premia China USD Property Bond ETF.

China’s 10-year sovereign bond futures reached a record high, fueled by a buying frenzy for government debt. The strong move came after data showed global investors boosted their holdings of Chinese debt to a record level last month. Speculative buying from retail investors, demand from fund managers riding a wave of inflows, and purchases by companies seeking higher yields than regular bank deposits are also fueling the rally. One-year deposits at China’s largest banks pay a record-low of just 1.45%. Consequently, China’s total deposits slumped by RMB 3.9 trillion in April and have yet to recover in May, with a significant proportion of funds rushing into higher-yielding fixed-income assets like government bonds. Some traders are betting on further stimulus measures to weigh on yields, as China’s consumer prices rose less than expected in May and factory prices fell for the 20th consecutive month. Shanghai Securities News reported that there is room for China to cut the reserve requirement ratio (RRR) for banks, as well as interest rates, in the third quarter. China needs to inject an additional RMB 500 billion of liquidity this year, which is equivalent to a 25-basis-point RRR cut. According to Natixis and GS, China’s 10-year yield could fall to between 2.18% and 2.2% by the end of the year, from its current level of around 2.25%.

Vietnam equities retested the year-to-date high despite the market saw the highest monthly net foreign outflow of USD 747 million in May. Overseas investors have net sold the market for four consecutive months. The disparity in interest rates, monetary policies, volatile exchange rates and political fluctuations has significantly influenced foreign investors' actions. This has led to global capital flow realignments, with markets experiencing slower growth, currency devaluations or being classified as frontier markets witnessing substantial capital withdrawals lately. That said, domestic demand remained strong and absorbed more than the outflows. Data from the Vietnam Securities Depository reveals that the number of domestic securities accounts increased by over half a million in the first four months of the year. As of April 2024, Vietnam had more than 7.7 million individual securities accounts, equivalent to approximately 7.7 percent of the population. Fundamentally, the country’s economic growth remains intact, supporting the equity market well, especially as the process of upgrading the market is being actively pursued. If measures aimed at upgrading Vietnam’s stock market are implemented more rigorously, it will eventually attract foreign capital inflows to ride the wave.

Malaysia’s stock market reached a milestone as it hit MYR 2 trillion in market capitalization for the first time earlier this month. The benchmark index FTSE Bursa Malaysia Kualua Lumpur Composite Index also surpassed the psychological barrier of 1,600 points for the first time in two years, alongside the rising market turnover. The current uptrend is broad-based, with positive momentum observed across all sectors. Some analysts believe the market is on the cusp of a sustainable bull run. Since its peak in 2018, Malaysian equities have been grappling with a prolonged downtrend, largely attributed to political instability stemming from frequent changes in administration and a lack of economic policy continuity. This trend was exacerbated by the rate differential resulting from the US Fed’s rate hikes. That said, Malaysia stands out as the top performer among ASEAN stock markets so far this year, attributed to strong support from local investors and the resurgence of foreign funds in May. With the advent of the Madani administration, marked by the rollout of new economic policies like the National Energy Transition Roadmap and the New Industrial Master Plan 2030, the nation sent a resounding signal to global investors that it was open for business. Malaysia equities account for about 26.9% of our Premia Dow Jones EM ASEAN Titans 100 ETF (2810.HK).

CATL remained solid no.1 in EV battery, producing a capacity of 35.5 GWh in the first two months of 2024. Its market share has widened to 38.4% year-to-date from 33.6% during the same period last year, followed by LG Energy Solution’s 12.7% and BYD’s 12.1%. For the overseas market, the Chinese leader also expanded its market share by a 0.6% point to 26.3%. The company has recently launched what it claims is the first mass-produced energy storage system with zero degradation in the first five years of its lifespan. This new equipment is capable of 15,000 charge cycles, a significant increase of 25% from the previous generation. The advancement of the new energy storage should help the company expand beyond its dominant EV battery business. The attractive dividend policy, coupled with improved market sentiment and rising EV demand, accounted for CATL’s recent strong stock price performance. The company has proposed a total of over RMB 22 billion in dividend payout, reflecting a payout ratio of 50% and a dividend yield of 2.5%. CATL is currently the top holding at Premia CSI Caixin China New Economy ETF (3173.HK).

A bull market seems emerging in some of China’s traditional and new economy sectors, as investors are seeing an upside to current valuations from policy measures to bolster the economy and the capital market. The National People's Congress (NPC) has reinserted stability to market sentiment. Historically, the A-share market gained about 3.9% on average during the month following each NPC since 2006. Fund inflows turned to be more vigorous since the NPC. Northbound flows were net outflow of RMB 8.4 billion in the first week of March but then changed to net inflows of over RMB 20 billion after the NPC month-to-date as of 21st March. The return to net inflows in March, building on February's strong momentum, could set the stage for back-to-back months of net inflows. A second consecutive month of northbound inflows could be an early sign of increasing foreign investors’ confidence.

China tech sector has outperformed in the recent market rebound, riding on the global AI rally. The AI related and chip stocks in China advanced as the authorities urged accelerating the technology’s development and cultivating more competitive companies. Nvidia’s Chief Jensen Huang sees Huawei is among a field of “very formidable” competitors in the race to produce the best AI chips. China pledged to harness the entire nation’s resources to speed homegrown scientific breakthroughs, reaffirming a central priority to become self-reliant in spheres from AI to chipmaking to wrest technological supremacy from the US. The central government will increase spending on scientific and technological research by 10% to RMB 370.8 billion in 2024. Both Premia China STAR 50 ETF (3151.HK) and Premia CSI Caixin China New Economy ETF (3173.HK) have showed strong performance since early Feburary.

Chinese long-duration government bonds’ bull run since 2018 shows no signs of cooling in 2024. The momentum will likely continue for the rest of 2024 as China plans to open up its repo markets to overseas investors, and PBOC may cut the policy rates as many as three times this year, according to local brokers’ forecasts. Over the past decade, policymakers have opened up the fixed-income market through the bond and swap connect program. Recently, they vowed to expand foreign access to the onshore repo market, allowing foreign traders to borrow and lend short-term funds using yuan bonds as collateral and gain exposure to CGB using leverage, increasing the foreign holdings of China bonds. On the policy front, the PBOC announced to cut RRR by 50bps, which is a more significant move than the regular practice of a 25bps cut and more than expected. Governor Pan mentioned in his statement that there’s still a gap “between the current price level and the expected price target”, a clear signal that the PBOC is concerned about deflationary pressures raising the market expectation of a cut in February. CITIC Securities even predicts that China needs three rate cuts this year to support the economic recovery. Investors interested in long-duration CGB for capital appreciation or portfolio diversification may look at our Premia China Treasury & Policy Bank Bond Long Duration ETF (2817.HK), which invests in a basket of CGBs and policy bank bonds with ten years or more tenor. We also offer a USD-hedged version (9177.HK) for investors concerned about currency movements.