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Weekly Outlook

Weekly Outlook 18 Dec 2023 – 24 Dec 2023

Weekly Commentary: 18 Dec 2023 – 24 Dec 2023

Major US equity benchmarks were positive over the last week. As talk of rate cuts happening as soon as next year and the Federal Reserve Chair suggested that they were likely done raising them, investors become bullish as interest rates represent the discount rate in future cash flow and a lower discount rate will lead to higher valuation for firms, especially growing tech firms who have negative cash flow in the benign years while the majority of the valuation is derived from terminal value far into the future. Economic activities have also declined due to the elevated interest rate. Economic activity in the eurozone contracted for the 7th month in a row, at a stronger pace than in November. The Eurozone PMI Index fell to 47 from 47.6 In November, against expectations of 48.2 by economists.

Economic recovery in China remains sluggish with investment and consumer spending expanding slower than expected last months. Property downturn remains prolonged, as new home prices in key cities fell faster in November. However, the state media has come out and said that the economy will be better in 2024 as macroeconomic policies continue to provide support.

Stock returns were positive over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+2.93%), S&P 500 Index (+2.52%), and NASDAQ Composite Index (+2.87%). Other notable key market indices that generated positive returns consist of the MSCI AC ASEAN Index (+1.33%) & MSCI World (+2.62%). All S&P 500 sectors registered positive returns last week with notable sectors – Materials (+4.03%), Real Estate (+5.59%), and Financials (+3.60%) falling more than the rest of the sector. For 2022, index returns were negative for the Dow Jones Industrial Average (-8.78%), S&P 500 (-19.44%), and the NASDAQ Composite (-33.10%).

The yield curve remains inverted as the 10Y-2Y US Treasury spread widened for the week by -0.51%. driven by U.S 2-year and 10-year Treasury yields falling 28 bps to 4.44% and 30 bps to 3.93% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 19 bps to 2.36% while the CBOE Volatility Index (VIX) fell 7 bps to 12.28%.

This coming week, the Bank of Japan will be announcing a rate-setting meeting decision. UK will also be releasing November’s retail sales figures and Q3 GDP data.

The global REITs market’s returns were mostly in the green across the numerous benchmarks. FTSE EPRA Nareit France Index (+3.83%) and FTSE EPRA Nareit Canada Index (+2.84%) are the notable REITs that generated positive returns over the past week. Closer to home, the iEdge S-REIT Index (+4.13%) and all of its subsectors generated positive weekly returns with Office REITs (+9.26%) and Real Estate Operating Companies REITs (+8.41%), the notable sector that outperformed the rest last week.  REITs generally have been affected by decreasing yield spread as interest rates surged and investors price in the possibility of reduced distributions stemming from higher financing costs. However, we do expect inflows to return to the sector given the existing attractive valuations on offer and resilience offered by the REIT asset class in light of the waning global growth outlook.

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