IInnvveessttmmeenntt BBuulllleettiinn · Later on, however, positive market momentum was dented by...

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Global Economy 2

Bond 6

Global Equities 10

Currency 14

Content

IInnvveessttmmeenntt BBuulllleettiinn NNoovveemmbbeerr 22002200

BOCI-Prudential Asset Management Limited 2

US

All eyes are on US presidential election as of late. However, as long as the coordinated

monetary and fiscal policies around the globe remain in place, we expect global

recovery to continue, irrespective who becomes the next US president. We reckon that

short term market volatility due to the outcome is unfortunately possible. It is true that

rising new infection cases in US and Europe could moderate the pace of recovery in

the near term, but prospects of more effective medication and treatment could re-ignite

the hope for continued global recovery, and this should lend further support to risk

assets.

Europe

UK Prime Minister Boris Johnson has announced national lockdown restrictions as

infections spike and government scientists warned the National Health System being

overwhelmed. France and Germany reintroduced significant shutdown measures that

would shut non-essential businesses and restaurants for several weeks. Italy announced

a partial lockdown. EU GDP surged 12.1% between July and September, however, the

region risks being tipped straight back into recession as sweeping restrictions aimed at

curbing a second wave of coronavirus bring uncertainties to the recovery. With respect

to economic sentiment, the latest consumer confidence index came in at -15.5 October

from -13.9 in the previous month. Latest Eurozone PMI came in at 54.4 in October,

increasing from 53.7 in September.

Global Economy


UK

In the UK, slower growth of output and further deterioration of labour market posed a

challenge to domestic economy. Economy growth slowed and was below market

expectation in August. Dominant services sector grew slower than market expectation.

Meanwhile, manufacturing and construction sectors showed only a modest expansion.

Both employment and jobless rate came in weaker than economists’ forecast in latest

month demonstrating that the effect of furlough scheme started to fade. On the other

hand, retail sales ex auto fuels extended the recovery in September but falling

consumer confidence and weakened labour market suggested that consumer spending

may soften going forward. Looking ahead, unemployment rate and real wage growth

should be the key indicators to gauge the health of domestic economy.

Japan

Japan’s economic recovery has so far been patchy, weakness in consumption and

capital expenditure offset a rebound in exports and output. Industrial production was

the bright spot, posting gains in consecutive months since the lifting of the state of

emergency. Corporate and household confidence were improving yet still behind

expectation. Additional stimulus might be on the cards, however a smaller scale in

comparison with previous packages has been widely expected. BoJ kept all key polices

unchanged during the month, while lowered current year forecast for growth and

inflation. Local cases of COVID-19 remained largely stable despite a slight resurgence

recently but a new wave of outbreak worldwide continued to cloud the outlook for

global recovery.


Asia

The pace of recovery in Asia is gaining traction. October activity data revealed

continued solid momentum with infection rates in certain hotspots in Asia trending

downwards. Export growth appeared to be resilient on the back of steady external

demand upturn. However, the momentum of export recovery may moderate against a

global backdrop of resurgence in coronavirus cases and another wave of lockdowns in

major economies. Given that both the intensity and the duration of new containment

measures remain a significant source of uncertainty and a potential downside risk for

the outlook, policy makers across the region largely maintained status quo of policy

rates but vowed to stay accommodative to mitigate the growth risk.

Australia

In Australia, high frequency data suggested that the path of recovery will not be

smooth. Even though local economy showed some signs of stabilizing in recent

months, external demand weakened due to resurgence in COVID-19 cases in overseas

countries. Unemployment rate came in better than market expectation in latest month

as government’s JobSeeker supplements showed supports during the pandemic. Retail

sales fell in August and it was the first decline since April 2020. The decline was

mainly due to restrictions in Victoria and the activities across the rest of Australia were

not seriously affected. On the other hand, trade surplus was below economists’ forecast

in August as COVID-19 pandemic impacted consumption demand of gold. Looking

ahead, consumer confidence and labour market condition should be monitored closely

to assess the health of economy.


Hong Kong

Hong Kong’s GDP narrowed contraction in the third quarter. Sequentially, it marked a

positive growth from previous quarter. The smaller year-on-year decline in GDP was

driven by a lower base effect last year and gradual recovery in both domestic and

external demand. Policy address was postponed as the government seeks for more

economic support from Beijing. Hong Kong's jobless rate further worsened for the

three months ended September, with tourism sector taking the biggest hit. Hong

Kong’s flagship carrier also announced a massive layoff plan during October. On a

positive note, two-way travel bubble with Singapore will be introduced with no

quarantine requirement. Official home price index indicated a marginal increase for

nine months ended September.

China

China’s third quarter GDP grew 4.9% over last year, versus the 3.2% growth in the

second quarter. The economic recovery trend could also be seen from the continuously

strong export and industrial production figures. On the other hand, import growth

surged to 13.2% in September from -2.1% in August while retail sales growth

increased to 3.3% from 0.5%. Domestic tourism revenues during the National Day

Golden Week recovered to 69.9% of last year’s level, which marked great

improvement from the Dragon Boat Festival and the Labour Day holiday. Moreover,

the daily retail sales during the golden week increased 4.9%. Domestic consumption is

joining the external demands in lifting the economy. The market now eyes on the

proposals of the 14th Five-Year Plan being accessed in late October. It should show

how Beijing plans to deal with the deteriorating Sino-US relation and the global

economic downturn.


US

US Treasury posted negative return in October, led by multiple factors. Among these

factors, non-economic factors dominated. US Presidential race, on-going fiscal

stimulus deal negotiation and surging Covid cases in US and Europe led to some

volatile move in US Treasury. Democrat President Candidate Biden leads the

Presidential race after the first debate and President Trump being tested positive for

Covid prompted a shift in expectation for an aggressive fiscal policy after election.

This, in turn, translated into a steeper yield curve where 30-year US Treasury yield

rose to the high at 1.69%, the highest since March. On contrary, the resurgence of

Covid cases in US and Europe and fading hope for fiscal stimulus deal before election

posted the risk of a double dip in economic growth supported US Treasury. On

economic front, US economic data was mixed. The slightly softer September

employment report and elevated number of jobless claims was offset by improving

retail sales and sharp rebound in the third quarter GDP growth. These have limited

impact on US Treasury move, however. In all, the 10-year US Treasury yield traded

up sharply by 19bps, concluded the month at 0.87% on a month on month basis.

Europe

In the Eurozone, bond market continued to rally and outperformed peers globally. A

new wave of Covid-19 infection spread in the region, with daily number of cases

exceeding the highs in the second quarter. In a bid to contain the pandemic,

European leaders announced a series of restrictions and lock-down policies, which hit

business sentiment and consumer confidence. Composite PMI dropped in October

and hit four-month low, as the sharp fall in services more than offset further gain in

Bond


manufacturing. The lost in recovery momentum paved the way for step-ups in both

fiscal and monetary policies. In October meeting, the ECB delivered strong signal

that more monetary support will be announced in December, which echoed with the

market expectations of expansion and extension in PEPP. On the back of mounting

policy expectation, German bund rallied across the curve, with 10-year yield declining

down by 11 basis points. Italian bond rallied in tandem with peers in the region.

10-Year Italian bond yield fell to historical low of 0.63% on the back of

search-for-yield buying before it gave up some gain towards month end.

UK

In the UK, gilt yield traded in a tight range with no clear direction. Economic data

remained resilient despite escalation in the pandemic. However, the tougher

Covid-19 restrictions and potential national lockdown are likely to hit economic

activities for the rest of the year. Meanwhile, “Brexit” negotiation continued as both

sides agreed to offer certain degree of concessions. With list of uncertainty growing,

UK gilt yield fell before Moody’s announcement of downgrade in UK’s rating. The

10-year yield rebounded from 0.15% to 0.26% and recorded 3 basis points gain for the

month. Ultra-long dated gilts underperformed, sending the curve steeper.

Japan

Japanese Government bonds (JGB) modestly softened in October. Albeit mildly,

bond yields rose, following the trend overseas, as the U.S. presidential election and

stimulus talks overshadowed the worsening situation of COVID-19 across the

Atlantic. Meanwhile, domestic factors were less of a focus among investors, as the

overall developments proved somewhat steady. Incoming data pointed to a

continuously improving economy, albeit slowly and unevenly. On policy front, Bank


of Japan (BoJ) kept major tools on hold in the month, notwithstanding its reiteration

of risks being tilted towards the downside for the economy, alongside a downward

revision of growth and inflation forecasts for this fiscal year.

Australia

Australia Government bond (ACGB) market showed mixed performance in October.

Yields in the longer maturities rose, in sympathy with a similar trend overseas, as the

U.S. presidential election and stimulus talks overshadowed the worsening situation of

COVID-19 across the Atlantic. Short-dated bond yields by contrast fell, amid

speculations over further policy easing by the Reserve Bank of Australia (RBA) as

soon as in November. In particular, the dovish rhetoric of the RBA Governor Lowe

at his latest speech, echoing the mixed data flows of late, fueled hopes for an enlarged

size of bond purchases by the central bank on top of its Yield Curve Control policy.

Overall, yield curve steepened during the month. The 10-year benchmark ACGB

yield rose by 4 basis points to close the period at 0.83%, against the 4-basis-points

drop in yield of the 3-year tenor to 0.12%.

Hong Kong

Hong Kong dollar (HKD) bond markets softened in October. Weakness was largely

felt in the longer maturities, where yields followed its U.S. counterparts higher, as the

U.S. presidential election and stimulus talks overshadowed the worsening virus

situation across the Atlantic. Meanwhile, short-dated bond yields plateaued, amid

the ample liquidity conditions. As a result, yield curve steepened. Favorable

capital flows into the city, where local currency strength triggered series of

interventions by the Hong Kong Monetary Authority (HKMA), has pushed the

interbank aggregate balance to a historical high. This offered downward impulse to


the front-end interest rates in both bond and interbank markets, notwithstanding the

heavy IPO activities.

China

Markit iBoxx ALBI China Offshore Bond Index (Investment grade overall) posted

gain for October, largely from interest income. Dim Sum Bond yield continue to

trade in range, benefitting from relatively higher coupon income and the Chinese Yuan

strength. The Chinese Yuan strengthened further on the back of firming China

economic activities. China economic data releases continue to suggest a stable

recovery. Despite the fact that third quarter GDP growth has missed market

estimates and consumer price inflation moderated, on-shore bond yield stayed firm.

The firmer on-shore bond rates pressured on Dim Sum bonds but relatively higher

rates offered by Dim Sum bonds continued to lure investors. The unsettled

US-China tension remains as a major risk to Dim Sum bond market.


US

US equities retreated into negative territory in October. Investors worried a COVID

resurgence and a stalled relief bill would flatten the growth momentum. The upcoming

presidential election also drove capital to risk-off alternatives. Expensive sectors like

Technology or Consumer Discretionary related stocks led the drop. Utilities related

names had strong support. Individual Information Technology related names recovered

lost grounds, thanks to their stronger-than-expected quarterly earnings. Going forward,

we expect political risks to be alleviated after the election. New financial aid would

even be passed swiftly if there is a “Blue Wave”. Risky assets would revive in

November against this backdrop.

Europe

European equity markets registered negative performance in October of 2020.

Netherlands equities outperformed while Germany equities underperformed among the

European markets. Regarding sector-wise performance in HKD terms, Utilities

outperformed most while Technology underperformed during the period.

UK

UK equity market fell last month as subdued economy growth and a resurgence of

Coronavirus cases locally weighed on investors’ sentiment. Energy related companies

dropped as crude oil prices declined on concern of rising Coronavirus cases around the

world. Health Care & Pharmaceutical industry also trailed the broader market as a

series of vaccine trails stopped during the month. Meanwhile, non-cyclical sectors like

Utilities and Telecom rose as investors switched to defensive plays. Going forward,

Global Equities


political development in the country and growth prospect in Europe would be the key

risk to UK equities.

Japan

Japan equity market fell in October. Local cases of COVID-19 continued to remain

stable but domestic economy was still awaiting for a noticeable rebound. Rising U.S.

coronavirus cases as well as angst over major technology companies’ results and

valuations dragged on sentiment near the end of month. Telecom outperformed while

Health Care & Pharmaceuticals related names underperformed the most. Looking

forward, market would likely remain volatile ahead of US Presidential and

congressional elections, and concerns about the reopening of economies amid

resurgence of coronavirus infections.

Asia

Asia equities managed to record gains during the month amid a global market

correction. Investors were emboldened by positive news on President Trump’s health

and speculated lowering risk of a contested election outcome in the US. The rotation

from momentum to value stocks continued as the steepening of yield curve and

better-than-expected quarterly earnings drove up stocks in banking sector. However,

Asia stocks consolidated into the month-end amid concerns over surging global

coronavirus cases and dimmed prospects for a fiscal-stimulus package before the US

election. In the near term, the uncertainties surrounding the outcome of US elections

along with the arrival of the second wave of COVID-19 will continue to push equity

volatility higher.


Australia

Australian equity market traded higher last month as rate cut optimism overshadowed

negative news of rising COVID-19 cases in Europe. Banking stocks led the gains of

local market as investors believed that government stimulus and further monetary

easing could support local economy. Meanwhile, Energy related sector continued to

underperform the broader market as new restrictions in Europe sparked concerns on oil

demand. Travel stocks also faced selling pressure as re-imposition of national

restrictions in Europe's two largest economies impeded the confidence of global

recovery. Going forward, growth prospect of China’s economy would be the key risk to

Australian equities.

Hong Kong

Hang Seng index opened October on a strong note, boosted by China’s robust economic

activities during Golden Week holidays. The rally was dented by COVID re-lockdowns

in Western countries. Sino-US tension continued to surge before US presidential

election. Chinese Communist Party wrapped up the top policy meeting by outlining

plans for steady course of economic development. China’s macro data showed a

continued progress towards normalization trend in economic activities and likely to

register a positive growth for full year. Quarterly corporate results generally indicated

similar recovery trends. The Commerce and Industry sub-index outperformed, driven

mainly by large cap technology names. The Properties sub-index underperformed,

dragged by both Hong Kong and China developers.


China

Major mainland equity indices staged a rebound after the National Day Golden Week,

but just closed slightly higher or flattish by end October. The rally of “new

infrastructure” and renewable energy related sectors, revived investor interests on the

traditional banking and insurance sectors, and positive macro releases were the major

uplifts during most of the month. But the upward momentum was largely discounted by

month-end after another round of overseas sell-offs triggered by renewed lock-down

measures, anticipation of the 19th CPC’s fifth plenary session as well as the upcoming

presidential election in U.S. The relatively tech-savvy ChiNext Index posted a 3.1%

gain in October and outperformed large-cap dominant mainland peers like Shanghai

Composite Index, which only edged 0.2% higher for the month. Hang Seng H-share

Index gained 3.8% in October, mainly led by the advance of several Communication

Services, Consumption Discretionary, and Financial Services related heavyweights.


USD

The US dollar stayed firm after the rebound in September. The resurgence of Covid

cases and uncertainty related to the US Presidential race prompted for short USD

position being unwound. The rising yield in long-dated US Treasury and higher

volatility in risk assets lent some support to the USD. In all, the dollar index traded in

range and edged up by 0.16% on month on month basis, concluded the month at

94.038.

Euro

In the Eurozone, the common currency was stuck in a trading range and recorded a

monthly loss of 0.63% in the second consecutive month. The economy recovered at

the fastest pace in the third quarter. However, the encouraging data failed to lift Euro

as resurgence in Covid-19 led to renewed lockdown policies in some member countries.

Meanwhile, monetary policy expectation and interest rate differentials are unfavorable

to Euro.

Sterling

In the UK, Sterling rebounded from the weakness in September as economic data

remained resilient despite rising number of Covid-19 infection and more social

distancing restrictions. Meanwhile, developments in “Brexit” negotiation were slight

positive as leaders from both sides pledged to continue dialogues until a deal is reached.

As such, Sterling recorded 0.21% gain and closed at $1.2947.

Currency


Yen

Japanese Yen (JPY) appreciated against major currencies in October. Worsening

COVID-19 situation across the Atlantic has fueled safe-haven demand for JPY.

Currency strength was further supported by the greenback softness, amid the

presidential election and stimulus talks, notwithstanding the cautious tone by the Bank

of Japan (BoJ), highlighting that risks are tilted towards the downside for the economy,

alongside a downward revision of growth and inflation forecasts for this fiscal year.

JPY finally settled at 104.66/USD, posting a monthly gain of 0.8%.

RMB

The Chinese Yuan’s strength remains despite some rebound in USD against major

currencies. Both Onshore (CNY) and Offshore (CNH) Chinese Yuan strengthened

against USD amid firming China economic activities. The firm China rates also

provide support to the currency. The official fixing appreciated against USD by

1.29% and concluded the month at 6.7232. Meanwhile, the Onshore Chinese Yuan

and Offshore RMB rose by 1.49% and 1.27% on month on month basis, concluded at

6.6915 and 6.6964 against USD respectively.


Important Information

Investment involves risks and is subject to market fluctuations and inherent risks. Investment in

emerging markets involves special risks and considerations. Investors could face no returns and/or

suffer significant loss related to the investments. Past performance is not indicative of future

performance.

The information contained herein is based on sources believed to be reliable and has not been

independently verified. BOCI-Prudential Asset Management Limited makes no representation,

warranty or undertaking, whether express or implied, in relation to the information, opinions or

projections have been based, and will not be responsible for damages arising out of any person’s

reliance upon this document. Information, opinions and projections in this document reflect a

judgment at its original date of publication and are subject to change without notice.

The information, opinions and projections contained herein are for reference only. The manager’s

comment above solely reflects the opinion, view and interpretation of the fund managers as of the

date of issuance of this document. Investors should not solely rely on such information, opinions and

projections to make any investment decision. Investors should seek independent financial and

professional advice as appropriate before making any investment decision. This document should not

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This document does not constitute any distribution, or any recommendation, offer, invitation or

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This document is issued by BOCI-Prudential Asset Management Limited and has not been reviewed by

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