MONTHLY MORNING MEETING OCTOBER 2019

MONTHLY MORNING MEETING OCTOBER 2019

PAGE 2 INDICES 3 MARKET INFORMATION 5 MARKETS REVIEW 14 BOND MARKET REVIEW 16 SECTOR REVIEW 18 STAR RATING

PRESENTED BY IFAST FINANCIAL (HK) LTD

p5. USA

p8. Singapore p9. Malaysia p10. Indonesia p10. Thailand

p7. South Korea

p11. India

P12. China

P12. Taiwan

P12. Hong Kong

p13. Brazil

p13. Russia

p7. Japan

p6. Europe

DISCLAIMER: THIS REPORT IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND. NO INVESTMENT SHOULD BE TAKEN WITHOUT FIRST VIEWING A FUND’ PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL. BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORCAST IS NOT NECESSARILY INDICATIVE OF LIKELY PERFORMANCE OF THE FUND.THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WEEL AS RISE. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. INVESTMENT INVOLVES RISK. THE MATERIAL IS ISSUED BY IFHK AND HAS NOT BEEN REVIEWED BY SFC.

MONTHLY MORNING MEETING OCTOBER 2019. PRESENTED BY iFAST FINANCIAL (HK) LTD ©

PAGE 2

INDICES

US Market & Market PE

SOURCE: BLOOMBERG & IFAST COMPILATIONS

(x) Index Europe Market & Market PE


(x) Index

Singapore Market & Market PE


(x) Index

India Market & PE Market PE


(x) Index

Technology & Market PE


(x) Index

China H-Share Market & Market PE


(x) Index

Asia ex-Japan Market & Market PE


(x) Index

Japan Market & Market PE


(x) Index



PAGE 3

MARKET INFORMATION (AS AT 24 SEP 2019)

INDEX AS AT 24 SEP 2019

CHANGE SINCE 31 AUG 2019

2018 RETURN YTD (%)

2017 RETURN (%)

5 YEAR BOND YIELD (%)

USA (S&P 500) 2966.6 1.4% 18.3% -6.2% 1.6%

Europe (Stoxx 600) 389.8 2.7% 15.5% -13.2% -0.8%

Japan (Nikkei 225) 22098.8 6.7% 10.4% -12.1% -0.3%

Emerging Markets (MSCI EM) 1011.4 2.7% 4.7% -16.6% 2.7%

Asia ex Japan (MSCI Asia ex Japan) 624.4 2.5% 4.7% -16.4% 1.9%

Singapore (STI) 3155.5 1.6% 2.8% -9.8% 1.7%

Hong Kong (HSI) 26281.0 2.2% 1.7% -13.6% 1.6%

Taiwan (Taiwan Weighted) 10918.0 2.8% 12.2% -8.6% 1.0%

South Korea (KOSPI) 2101.0 6.8% 2.9% -17.3% 1.4%

China (HS Mainland 100) 7759.3 1.9% 2.5% -15.3% 2.9%

Malaysia (KLCI) 1592.3 -1.2% -5.8% -5.9% 3.3%

Thailand (SET Index) 1630.5 -1.5% 4.3% -10.8% 1.4%

India (SENSEX) 39097.1 4.7% 8.4% 5.9% 6.4%

Indonesia (JCI) 6137.6 -3.0% -0.9% -2.5% 6.6%

Russia (RTSI$) 1358.8 5.1% 27.1% -7.4% 6.7%

Brazil (IBOV) 103875.7 2.7% 18.2% 15.0% 6.4%

Australia (S&P/ASX 200) 6748.9 2.2% 19.5% -6.9% 0.7%

Technology (NASDAQ 100) 7710.0 0.2% 21.8% -1.0% -

P/E Yr 2019 P/E Yr 2020 P/E Yr 2021 Earnings

Growth 2019 (%) Earnings

Growth 2020 (%)

USA (S&P 500) 18.1 16.3 14.8 1.1% 10.5%

Europe (DJ Stoxx 600) 14.8 13.6 12.7 2.1% 8.8%

Japan (Nikkei 225)* 16.0 15.5 14.3 -0.5% 3.3%

Emerging Markets (MSCI EM) 13.1 11.6 10.3 -9.1% 13.2%

Asia ex Japan (MSCI Asia ex Japan) 14.0 12.3 10.9 -10.8% 13.5%

Singapore (STI) 12.7 12.0 11.5 1.8% 5.5%

Hong Kong (HSI) 10.5 9.9 9.1 4.3% 6.3%

Taiwan (Taiwan Weighted) 16.6 15.1 13.7 -13.3% 10.0%

South Korea (KOSPI) 13.6 10.8 9.1 -34.1% 25.4%

China (HS Mainland 100) 8.5 7.9 7.2 5.6% 7.9%

Malaysia (KLCI) 16.6 15.6 14.6 -4.9% 6.6%

Thailand (SET Index) 16.5 14.8 13.7 -7.4% 10.9%

India (SENSEX) 21.0 17.4 14.8 10.6% 20.9%

Indonesia (JCI) 14.9 13.2 12.0 10.8% 12.9%

Russia (RTSI$) 6.2 5.9 5.5 4.3% 5.7%

Brazil (IBOV) 13.6 11.9 11.6 15.3% 14.0%

Australia (S&P/ASX 200) 17.3 16.7 16.2 2.3% 3.5%

NASDAQ 100 (Technology Heavy) 21.5 18.9 16.1 1.0% 13.6%

SOURCE: IFAST COMPILATIONS, BLOOMBERG ESTIMATES ALL EARNINGS GROWTH FIGURES WERE UPDATED AS AT DATE SPECIFIED

RETURNS ARE IN THE RESPECTIVE LOCAL CURRENCY TERMS AND MSCI INDEX RETURNS ARE IN USD TERMS

MARKET INFORMATION



PAGE 4

EARNINGS YIELD

EARNINGS YIELD 2019 (%) 5 YEAR

BOND YIELD (%) EXCESS YIELD (%)

USA (S&P 500) 5.5% 1.6% 3.9%

Europe (DJ Stoxx 600) 6.7% -0.8% 7.5%

Japan (Nikkei 225)* 6.2% -0.3% 6.6%

Emerging Markets (MSCI EM) 7.6% 2.7% 4.9%

Asia ex Japan (MSCI Asia ex Japan) 7.1% 1.9% 5.3%

Singapore (STI) 7.9% 1.7% 6.2%

Hong Kong (HSI) 9.5% 1.6% 7.9%

Taiwan (Taiwan Weighted) 6.0% 1.0% 5.0%

South Korea (KOSPI) 7.4% 1.4% 6.0%

China (HS Mainland 100)+ 11.7% 2.9% 8.8%

Malaysia (KLCI) 6.0% 3.3% 2.7%

Thailand (SET Index) 6.1% 1.4% 4.7%

India (SENSEX)* 4.8% 6.4% -1.7%

Indonesia (JCI) 6.7% 6.6% 0.1%

Russia (RTSI$) 16.1% 6.7% 9.3%

Brazil (IBOV) 7.4% 6.4% 0.9%

Australia (S&P/ASX 200) 5.8% 0.7% 5.0%

MARKET STAR RATINGS OUR 3 YEAR VIEW

Asia ex-Japan 4.5 Very Attractive

Emerging Markets 4.5 Very Attractive

Europe 2.5 Neutral US 2.0 Unattractive

Japan 3.5 Attractive

MARKET STAR RATINGS OUR 3 YEAR VIEW

Singapore 4.0 Very Attractive

China A 4.0 Very Attractive

China 4.5 Very Attractive

Hong Kong 4.5 Very Attractive

South Korea 4.5 Very Attractive

Indonesia 3.5 Attractive

India 3.0 Attractive

Thailand 2.5 Neutral

Malaysia 3.0 Attractive

Taiwan 4.0 Very Attractive

Brazil 2.5 Neutral

Russia 3.5 Attractive

SOURCE: IFAST FINANCIAL COMPILATIONS, BLOOMBERG ESTIMATES. EARNINGS YIELD IS THE RECIPROCAL OF THE PRICE-EARNINGS RATIO. IT IS BASICALLY

THE AMOUNT OF EARNINGS YOU PURCHASE FOR EVERY DOLLAR WORTH OF THE STOCK (I.E. IF A MARKET HAS AN ESTIMATED PE OF 12X, THE EARNINGS YIELD IS 8.3%) *JAPAN AND INDIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED MARCH 2018, 2019 AND 2020 RESPECTIVELY

^AUSTRALIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED JUNE 2018, 2019 AND 2020 AND ALL RETURNS ARE IN THEIR RESPECTIVE LOCAL CURRENCY TERMS.

+THE HANG SENG CHINA (HK-LISTED) 100 INDEX (HSML100) (HSML100) COMPRISES BOTH H-SHARE COMPANIES AND RED-CHIP STOCKS AS WELL AS SHARES OF OTHER HONG KONG –LISTED MAINLAND COMPANIES.

HSML100 INDEX DERIVES A MAJORITY OF THEIR SALES REVENUE FROM MAINLAND CHINA. THIS SUMMARY IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND. NO INVESTMENT DECISION SHOULD

BE TAKEN WITHOUT FIRST VIEWING A FUND'S PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORECAST IS NOT NECESSARILY INDICATIVE OF THE FUTURE OR LIKELY PERFORMANCE OF THE FUND. THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WELL AS RISE. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO

CHANGE WITHOUT NOTICE. PLEASE READ OUR DISCLAIMER

MARKET INFORMATION

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PAGE 5

MARKETS REVIEW

REGIONAL MARKETS UPDATE

US MARKET (2.0 STARS – UNATTRACTIVE)

MARKET OUTLOOK Earnings estimates of American corporations (as represented by the S&P 500 Index) on aggregate saw marginal downgrades over the month of September, with 2019’s and 2020’s estimates lowered by -0.8% and -0.7% respectively (as of 27 September 2019). Sell-side analysts have continued to lower earnings estimates on expectations of slower growth momentum and rising headwinds in the US. On a sector basis, only three sectors saw positive revision, IT, Health Care and Energy over the past one month. The US Energy sector saw the strongest upgrades over same period at 1.2%. Real estate saw the largest downgrades to aggregate EPS (-2.1%). Overall, we do not expect earnings growth to contract, barring an outright economic recession, but a positive number for 2019. With regards to recently-released economic data, leading indicators such as the ISM Manufacturing PMI came in at 49.1 in August 2019, falling from prior month’s 51.2. The services counterpart, the ISM Non-manufacturing PMI, also declined as it came in at 56.4 in August 2019 as compared to prior month’s 53.7. The Markit US Manufacturing PMI also dropped to 50.3 in August 2019 from 50.4 in the previous month. Overall, data came in mixed, which suggests economic uncertainty in growth prospects. In terms of the US labour market, nonfarm payrolls came in at 130,000 in Aug, a much lower print than July’s 159,000. Private payrolls also came in at 96,000 in August, significantly lower than prior month. The headline unemployment rate remained unchanged at 3.7%. The US housing market improved marginally with most indicators rebounding. On the monetary front, the US Federal Reserve has again cut interest rates by 0.25% for its September meeting. US equities continued to climb the ‘wall of worry’ following the dovish tilt by global central banks, with the S&P 500 Index clocking in a 2.5% gain in USD price terms as of 27 September 2019 (1.8% in SGD price terms). Consequently, valuations rebounded, with the S&P 500 Index trading at 18.1X and 16.4X 2019’s and 2020’s estimated earnings as compared to its fair PE ratio of 15.0X. Valuations are expensive while risks are mounting, as the US economy is in the later stages of its business cycle. Therefore, we maintain our rating of 2.0 Stars “Unattractive” for the US equity market.

ISM Manufacturing PMI came in at 49.1 in Aug 19, down from 51.2 in Jul 19

ISM Non-Manufacturing came in at 56.4 in Aug 19, up from 53.7 in Jul 19

Nonfarm payrolls rose 130,000 in Aug 19, after a downward-revised 159,000 gain in Jul 19

Private payrolls rose 96,000 in Aug 19, after a downward-revised 131,000 gain in Jul 19

Unemployment rate at 3.7% in Aug 19, unchanged from Jul 19

Factory orders rose 1.4% m-o-m in Jul 19, up from a downwards revised 0.5% m-o-m increase in Jun 19

Advance retail sales rose 0.4% m-o-m in Aug 19, as compared to an upward-revised 0.8% m-o-m rise in Jul 19

Industrial production rose 0.6% m-o-m in Aug 19, up from an upward-revised -0.1% m-o-m increase in Jul 19

Housing starts registered a 1.36 million annual rate in Aug 19, after a upward-revised 1.22 million annual rate in Jul 19

Building permits registered a 1.42 million annual rate in Aug 19, after an downward-revised 1.32 million rate in Jun 19

Existing home sales registered a 1.3% m-o-m increase in Aug 19 to a 5.49 million annual rate, after a 2.5% m-o-m growth in Jul 19

Consumer confidence index at 125.1 in Sep 19, down from an downward-revised 134.2 in Aug 19

Fed Funds Rate: 1.75% – 2.00%



PAGE 6

MARKETS REVIEW

REGIONAL MARKETS UPDATE EUROPE (2.5 STARS – NEUTRAL)

MARKET OUTLOOK European corporations on aggregate (as represented by the benchmark Stoxx 600 Index) saw aggregate earnings estimates revised slightly over the month of September, with 2019’s and 2020’s earnings estimates revised higher by 0.2% and lower by -0.1% respectively (as of 27 September 2019). On an industry group perspective, European automobile companies continue to see earnings downgrades on aggregate, with 2019’s earnings lowered by -0.3% in the last one month. Banks saw earnings estimates lowered over the month by -0.2%, while Basic Resources players saw the largest earnings downgrade (-1.8%). Financial Services companies saw the largest earnings upgrades at around 0.5% over the same period (as of 27 September 2019). In terms of hard economic data, aggregate industrial production data for the Euro-zone region fell -2.6% year-on-year in Jun, furthering its contraction after declining -0.8% in the prior month. Month-on-month, industrial production for Jun fell to -1.6% as compared to a prior 0.8% decline. Retail sales continued to register gains, albeit in a slower pace, increasing by 2.2% year-on-year in July as compared to a prior upward-revised 2.8% year-on-year gain. In terms of leading indicators, aggregate Eurozone PMIs fell marginally, with the preliminary composite PMI coming in at 50.4 in September. The reading has declined from prior month’s 51.9. Both preliminary manufacturing and services also have fallen in the month of September. On a single market basis, composite PMIs have fallen from prior month for Germany, France and the UK. Overall, European equities traded higher after early-August’s selloff, as it rose 2.8% in EUR price terms over the month, as of 27 September 2019 (1.7% in SGD price terms). Consequently, European equities’ valuation multiples have rose, currently trading at 14.8X and 13.6X 2019’s and 2020’s estimated earnings respectively, as compared to its fair PE ratio of 15.0X. Growth momentum in Germany has continue to cool and have dragged down regional economies. For the moment, we are maintaining a 2.5 Stars “Neutral” rating for Europe.

EUROZONE AGGREGATE

Advance reading of Eurozone PMI composite at 50.4 in Sep 19, as compared to a finalised 51.9 in Aug 19

Advance Consumer Confidence at -6.5 in Sep 19, up from a finalised -7.1 in Aug 19

Retail sales rose 2.2% y-o-y in Jul 19, down from an upward-revised 2.8% y-o-y gain in Jun 19

ZEW survey (expectations) at -22.5 in Sep 19, down from -44.1 in Aug 19

Sentix Investor Confidence came in at -11.1 in Sep 19, down from -13.7 in Aug 19

GERMANY

Advance composite PMI at 49.1 in Sep 19, down from a finalised 51.7 in Aug 19

Factory orders fell -5.6% y-o-y in Jul 19, after an downward-revised -3.5% decrease in Jun 19

ZEW Current Situation Survey worsened while ZEW Expectations Survey improved in Sep 19

IFO surveys - current assessment and business climate - improved in Sep 19 while IFO expectations surveys declined in Aug 19

FRANCE

Preliminary PMI composite at 51.3 in Sep 19, down from a finalised 52.9 in Aug 19

Industrial production remained fell -0.2% y-o-y in Jul 19, down from a downward-revised -0.1% y-o-y in Jun 19

Bank of France business sentiment at 99 in Aug 19, INSEE business confidence at 106 in Sep 19

UNITED KINGDOM

Preliminary PMI Composite at 50.2 in Aug 19, down from 50.7 in Jul 19

Retail sales ex auto fuel rose 2.2% y-o-y in Aug 19, up from a upward-revised 2.9% rise in Jul 19



PAGE 7

MARKETS REVIEW

REGIONAL MARKETS UPDATE NORTH ASIA

MARKET OUTLOOK

Japan: 3.5 Stars－Attractive

Eco Watcher’s Outlook Index came in at 39.7 in Aug 19, down from 44.3 in Jul 19

Core Machine Orders rose 0.3% y-o-y in Jul 19, down from 12.5% in Jun 19

Export dropped 8.2% y-o-y in Aug 19, down from the 1.6% y-o-y decline in Jul 19

Import dropped 12.0% y-o-y in Aug 19, down from 1.2% y-o-y decline in Jul 19

PPI dropped 0.9% y-o-y in Aug 19, down from 0.6% decline in Jul 19

Yen (JPY) depreciated against USD by 1.64% month-to-date (as of 19 Sep 19), as compared to a 2.30% appreciation in Aug 19

South Korea: 4.5 Stars－Very Attractive

Manufacturing PMI came in at 49 in Aug 19, up from 47.3 in Jul 19

Unemployment rate SA came in at 3.1% in Aug 19, down from 4.0% in Jul 19

CPI came in at 0.0% y-o-y in Aug 19, down from 0.6% y-o-y in Jul 19

Exports shrunk 13.6% y-o-y in Aug 19, down from 11.0% y-o-y decline in Jul 19

Imports dropped 4.2% y-o-y in Aug 19, down from 2.70% y-o-y decline in Jul 19

Won (KRW) appreciated against USD by 1.46% month-to-date (as of 19 Sep 19), as compared to a 2.40% depreciation in Aug 19

Japan's exports dropped 8.2% year-on-year in Aug, down from the previous value of 1.6% decline in Jul. Although the export data in Aug was better than market expectation, it was still lower than the previous value and recorded negative growth for nine consecutive months. Under the weakening of external demand, the decline in data recorded this month was mainly due to the decline in exports of automobiles, auto parts and semiconductor production equipment, both experienced a significant decline as compared to the same period of last year. Similar to the previous month, the export data in Aug highlighted the rising external risks for Japan’s export led economy, the pressure on exports means that the Japanese economy as a whole is also under pressure.

In addition, by restricting exports to South Korea will undoubtedly have certain negative impact on Japan’s export data in the short term as the majority of Japan’s semiconductor components are exported to South Korea. Looking ahead, if the trade dispute between Japan and South Korea continues, not only will it add pressure on both the Japanese and Korean companies, but the global technology development will be affected. Under the current market condition in Japan (low GDP growth etc), Japan is unlikely to maintain the restriction on South Korea in definitely. Looking forward, Japan’s economy will continue to face certain challenges due to the slowdown in the global economic growth. The good news is that the US and Japan made an announcement after the G7 summit that the two sides reached a certain degree of trade agreement, with Japan reducing the tariff on US imported beef, pork and corn, to approximately the same level as before the US Trans-Pacific Partnership (TPP) withdrawal. Although the two sides have not yet reached an agreement on the automobile tariffs, both sides intended to continue discussions on the relevant issues and are expected to sign the agreement contract during the UN General Assembly in New York. We remain our view on the Bank of Japan is unlikely to withdraw from its ultra-loose monetary policy in the short term, if the economic growth situation gets worse, the Bank of Japan might even provide more stimulus measures in order to ease the impact of the slowdown in demand from foreign countries and the negative effect brought about by the Japan-Korea trade friction and consumption tax.

Moving to Korea, unemployment rate had dropped to 4.0% in May and stabilized at the same level for three consecutive months; one of the reasons unemployment remained at a rather high level is because of the deteriorating manufacturing sector since year-to-date. But deceleration of such trend has started to be observed since 2Q19: except in June, the other 3 months recorded a growth of industrial production in year-on-year basis. Together with the increasing fiscal budget from the South Korea government, unemployment rate in August came surprisingly at 3.1%, significantly lower than prior and beating consensus expectation. This might imply the South Korea economy is starting to pick up, despite the worsening relationship with Japan. Nevertheless, South Korea’s exports contracted for 9 months consecutively, whilst semi-conductor sector that dominating the country’s export, still pressured from the limitation issued by Japan on certain important raw materials. It was somehow believed that the export sector will start to recover soon though, with the decreasing pace of deleveraging and also the fiscal stimulus in China, this is good news for South Korea as China is the largest trading partner to South Korea. Also, the supply shock of semi-conductors as the result of Japan cutting the supply of critical raw materials helped to hike the export prices, as reflected by the recent rebound in prices of DRAM and NAND, which might compensate back the decrease in export quantity.

For South Korean equities, earnings estimate of the two major semiconductor players has been revised downward as compared to last month. Despite the negative market sentiments, there could be some positive catalysts to support both the short and long term development in semiconductor industry. In a shorter horizon, given the Sino-US trade dispute is unlikely to be settled soon, Samsung Electronics could still benefit from potential US sanction towards Chinese technology firms, which might push their demand towards South Korea companies. In the long run, emergence and popularization of 5G, IoT, data centres and cloud services would drive the development of the industry.

As at 19 September 2019, the estimated PE ratios of Nikkei 225 Index were at 15.44X for FY 2020 and 14.23X for FY 2021, the estimated PE ratios for the KOSPI Index were at 10.73X for 2020 and 9.03X for 2021. Valuations remain rather attractive compared with other markets. Thus, we maintain our star ratings of the Japanese and the South Korean market at an “Attractive” rating of 3.5 stars and at a “Very Attractive” rating of 4.5 stars respectively. **Japan’s fiscal year ended in March (e.g. FY 2018 ends in March 2019)



PAGE 8

MARKETS REVIEW

SOUTH EAST ASIA

MARKET OUTLOOK

SINGAPORE – 4.0 STARS (VERY ATTRACTIVE) Purchasing Managers Index came in at 49.9 in Aug 19, up from 49.8 in Jul 19

Electronics sector PMI came in at 49.4 in Aug 19, up from 49.3 in Jul 19

Retail sales fell -1.8% y-o-y in Jul 19, up from a -8.9% y-o-y decrease in Jun 19

Retail sales ex-autos declined -2.4% y-o-y in Jul 19, up from an upwards revised –2.7% y-o-y decrease in Jun 19

Non-oil domestic exports fell –8.9% y-o-y in Aug 19, up from a downwards revised –11.4% y-o-y decrease in Jul 19

Electronic exports plunged –25.9%% y-o-y in Aug 19, following the –24.2% y-o-y contraction in Jul 19

CPI rose by 0.5% y-o-y in Aug 19, up from a 0.4% y-o-y rise in Jul 19

Core CPI rose by 0.8% y-o-y in Aug 19, unchanged from prior month

Industrial production fell -8.0% y-o-y in Aug 19, down from a downwards revised -0.1% increase in Jul 19

Singaporean corporations on aggregate (as gauged by the STI Index) saw earnings estimates being revised downwards by -1.6% and -1.9% for FY 2019 and 2020 respectively (as of 27 September 2019). Over the month of September, most sector saw earnings upgrade except Consumer Staples and Communication Services. Consumer Staples sector had the largest earnings downgrade again, amongst all the sectors, by -7.7%. On the other hand, the Financials sector had the largest upgrade in September (+0.4%). Following a previous decline of -11.4% for Singapore’s non-oil domestic exports (NODX), it fell by -8.9% year-on-year in August, surprisingly better than the consensus forecast of -10.6%. As Singapore sits along the semiconductors supply chain, the falloff in regional demand for electronics plunged the electronic exports by -25.9% year-on-year. The decline in electronics exports comes on the back of a slowdown in East Asia exacerbated by the US-Sino and Japan-South Korea trade dispute, which has negatively impacted on demand for electronics exports. It is likely that Singapore’s NODX will continue contracting over the next few months until trade uncertainties dissipate. On the inflation front, consumer prices were up 0.5% year-on-year in August. The subdued inflationary pressure in Singapore largely reflects muted price change broadly across all its categories. In the month of July, Singapore's core inflation also remained at a 3-year low, recording an increase of only 0.8% year-on-year. The moderating inflation is the result of a softening global demand and, moving forward, we expect it to build the case for monetary easing by the MAS. Singapore’s PMI in August came in at 49.9, down from 49.8 in July 19 and beating analyst’s expectations of 49.7. While PMI rebounded marginally, it has been in a downtrend since the first quarter of 2018. This is largely contributed by the slowdown in the demand for electronics as reflected in Singapore’s electronics sector PMI, which has also been in a downtrend. We believe Singapore’s electronics sector will continue to face macro headwinds over the next few months as external demand remains suppressed by the trade dispute. After the selloff in August, the Singapore equity market rebounded in September before dipping marginally mid-month. Over the month of September, the STI was up 0.5%% in SGD price terms (as of 27 September 2019). The STI is now trading at 12.6X and 11.9X 2019’s and 2020’s estimated earnings, as compared to its fair PE ratio of 15.0X. Overall, we maintain a 4.0 Stars “Very Attractive” rating on the Singapore equity market.



PAGE 9

MARKET OUTLOOK

MARKETS REVIEW

SOUTH EAST ASIA

MALAYSIA – 3.0 STARS (ATTRACTIVE) Exports grew by 1.7% y-o-y in July 19, up from a -3.1% y-o-y decrease in June 19

Imports shrank by -5.9% y-o-y in July 19, up from a -9.2% y-o-y decrease in June 19

Trade Balance increased to RM 14.3 billion in July 19, up from RM 10.3 billion in June 19

Industrial Production grew by 1.2% y-o-y in July 19, a fall from 3.9% y-o-y growth in June 19

As of 20 August 2019, KLCI companies are expected to post EPS of 95.8, 102.1 for FY 2019, FY 2020 respectively, representing earnings contraction of -7.1% for 2019 and earnings growth of 7.3% for 2020. These translate into PE ratios of 16.7X and 15.6X for 2019 and 2020 respectively. As a whole, KLCI index’s earnings estimates saw a downgrade of about -1.5% over the month. The Consumer staple sector posted the highest earnings downgrade (-6.1%) as one of its constituents, Sime Darby Plantation Bhd posted an earnings downgrade due to weaker-than-expected earnings from a decline in crude palm oil (CPO) and palm kernel (PK) prices, as well as lower sales volume. On the macroeconomic front, exports grew by 1.7% y-o-y in July 2019. The main factors that contributed to the increase were electrical and electronic products (41.0% of exports), which grew by RM 1.5 billion (+4.5%) to RM36.0 billion from a decline of RM 1.8 billion (-6.0%) in June. Liquefied natural gas (LNG) (3.8% of exports) also grew by RM 798.7 million (+31.3%) to RM 3.3 billion due to the increase in export volume (+44.6%). One of the main negating effects of these changes were crude petroleum (2.4% of exports), which decreased by RM 1.7 billion (-45.7%) to RM2.1 billion due to the decrease in both export volume (+45.0%) and average unit value (-1.2%). Moving forward, Malaysia's exports is likely to be supported by the still healthy global demand for electrical and electronic products given the rising trends of 5G and Internet of Things. On 12th September, Bank Negara Malaysia has decided to maintain the OPR rate at 3% mainly due to the resiliency of domestic private spending. Caution is given, however, to developments in geopolitical risks. Moving forward, we expect Bank Negara Malaysia (BNM) to remain accommodative to the business environment and local inflation rate to stay benign for FY19 given that the local government has capped the RON95 and Diesel prices, despite hike in global oil prices. The chances for another rate cut by BNM in 2H 2019 has increased due to uncertain global trade outlook as well as the benign local inflation rate, which should give more room for BNM to cut rates. The KLCI Index posted -0.9% of loss in August 2019, resulting in the decline in estimated PE for 2019 over the month. As of 20th of August 2019, the KLCI index was trading at 16.7X estimated PE, which is trading at a slight premium compared to our fair PE of 16.0X. Although we do expect some short-term volatility in the local equity market due to the unsettled global uncertainties as well as the subdued earnings growth, we are maintaining a positive view on the local equity market especially the local small to mid-cap sector over the medium-to-long term, supported by the still strong local private sector, clearer government policy, and the trade diversification of the trade war. Hence, we maintained the star ratings for Malaysia at 3.0 stars “Attractive”.



PAGE 10

MARKET OUTLOOK

MARKETS REVIEW

SOUTH EAST ASIA THAILAND –2.5 STARS (NEUTRAL)

INDONESIA –3.5 STARS (ATTRACTIVE)

Consumer Price Index came in at 0.5% y-o-y on Aug 19, decreased from a 1.0% y-o-y growth on Jul 19

Core CPI came in at 0.5% y-o-y on Aug 19, slightly higher than the 0.4% y-o-y increase on Jul 19

Consumer economic confidence came in at 60.9 on Aug 19, down from 62.2 on Jul 19

Consumer confidence came in at 73.6 on Aug 19, down from 75.0 on Jul 19

Custom exports decreased by -4.0% y-o-y on Aug 19, lower than the downward-revised 3.8% y-o-y increase on Jul 19

Custom imports decreased by -14.6% y-o-y on Aug 19, lower than the downward-revised 0.7% y-o-y increase on Jul 19

Custom trade balance increased to USD 2,053 million on Aug 19, up from a prior value of USD 110 million on Jul 19

Foreign reserves remain unchanged compared to previous month at US$220.9b on Aug 19

Consumer Price Index came in at 3.5% y-o-y on Aug 19, higher compared to 3.3% on Jul 19

Core CPI came in at 3.3% y-o-y on Aug 19, higher than a 3.2% y-o-y increase on Jul 19

Consumer confidence came in at 123.1 on Aug 19, down from 124.8 on Jul 19

Exports contracted -10.0% y-o-y on Aug 19, lower than the upward-revised -5.1% yoy-contraction on Jul 19

Imports came in at -15.6% y-o-y on Aug 19, lower than the upward-revised -15.2% y-o-y contraction on Jul 19

Trade balance came in at USD 85 million on Aug 19, up from prior’s USD -60 million on Jul 19

Foreign reserves came in at USD 126.4 billion on Aug 19, higher compared to USD 124.8 billion on Jul 19

Thailand equity, as represented by the SET Index, has its earnings estimates for both FY 2019 and 2020 revised downwards by -1.6%. These brings Thai equities’ earnings growth to -7.3% and 11.0% respectively over 2019 and 2020. Energy (-0.6%), Industrials (-0.4%) and Materials (-0.3%) accounted for most of the downgrades in earnings estimates. Energy companies that have downstream businesses, such as PTT PCL and PTT Chemicals have their earnings estimates revised downwards as crack spread margins are expected to witness compression against the prospect of higher crude oil prices due to the recent Saudi oil attacks. Similarly, Financials (-0.1%), Healthcare (-0.1%) and Real Estate (-0.1%) also witnessed downgrades in their respective earnings forecasts. On the other hand, consensus upgraded its earnings estimates for Consumer Staples (+0.1%) companies. Earnings estimates for the remaining sectors were largely unchanged over the month. Looking south, Indonesian equity, as represented by the JCI Index, has its earnings estimates revised upwards by 0.6% and downwards by -0.2% respectively for FY 2019 and FY 2020. Earnings growth for the aforementioned financial years stood at 10.6% and 13.0% respectively, with most of the earnings upgrades attributable to Materials (+0.2%) and Real Estate (+0.2%). Vale Indonesia, as one of the Materials players in Indonesia, is expected to benefit from the government’s Nickle-ore export ban on higher Nickle prices over the long term. In contrast, analysts slashed earnings estimates for Financials (-0.2%), as banks’ net interest margin could witness downward pressure given that Bank Indonesia has eased rates considerably on the monetary front. Earnings forecasts for the remaining sectors witnessed little change over the month. Post-election, Thailand’s consumer and business confidence has been showing a declining trend, which could be attributable to slowing exports and tourism activities. As Thailand derives more than 60% of GDP from export activities, its economy is being affected by the on-going US-Sino trade war. The persistent strength in the Baht also adds to the list of worry for exports manufacturers and tourism-related businesses. To curb the strength of Baht, the Bank of Thailand has reduced the issuance of short-term notes on top of lowering interest rates back in August. Thus far, the Baht has halted its appreciation trend and the effect coming from the monetary policy tools may have started to set in. Looking towards Indonesia, the macroeconomic picture remains largely intact. Bank Indonesia (BI) has slashed its benchmark rate by 25 basis points for the third consecutive month, showing its willingness to support economic growth. BI has also relaxed rules for property and vehicle loans to boost borrowing appetite. While further rate cuts are still in the cards, inflation numbers are creeping towards the midpoint of its inflation target range of 2.5%-4.5%. Should the trend continue, we are of the view that BI may have little room to ease further. Looking into 2020 valuations, the SET Index is standing at a premium of 14.7X compared to our fair PE ratio of 14.0X, attributable to the downward revision in earnings for Thai equities. Taking into account the increased downside risk to economic growth, dull earnings prospect on top of unexciting upside potential, we have maintained the star rating for Thailand equities at 2.5 Stars (Neutral). As for Indonesia equities are currently trading at 13.4X PE for FY 2020, which is relatively attractive compared to our fair PE of 15.0X. With that, we maintain the star rating for Indonesia at 3.5 Stars (Attractive).



PAGE 11

MARKETS REVIEW

INDIA – 3.0 STARS (ATTRACTIVE)

MARKET OUTLOOK

SOUTH ASIA

Exports were at 6.1% y-o-y in August 19, up from 2.3% y-o-y in July 19

Imports were at 13.5% y-o-y in August 19, up from 10.3% y-o-y in July 19

CPI rose 3.2% in August 19, down from 3.2% y-o-y in July 19

Industrial production up 4.3% y-o-y in July 19, up from 3.6% y-o-y in June 19

India’s exports during August 2019 were valued at USD 26.1 billion registering a negative growth of 6.1% in dollar terms as compared to USD 27.8 billion during the month of August 2018. Imports during August 2019 were valued at USD 39.6 billion, which was 13.5% lower in dollar terms as compared to imports which were valued at USD 45.7 billion in August 2018. The trade deficit for the month of August 2019 stood at USD 13.5 billion vis-à-vis a deficit of USD 17.9 billion during August 2018. ON the industrial front, India’s Industrial production was up 4.3% year-on-year in July 19 as compared to 3.6% year-on-year in June 19. The major sectors like Mining, Manufacturing and Electricity registered year-on-year contraction rates of -4.9%, -4.2% and -4.8% respectively. As per Use-based classification, the growth rates in July 2019 over July 2018 are 3.5% in Primary goods, -7.1% in Capital goods, 13.9% in Intermediate goods and 2.1 percent in Infrastructure/ Construction Goods. The Consumer durables and Consumer non-durables have recorded growth of (-) 2.7 percent and 8.3 percent respectively. Corporate earnings growth estimates for 2019 & 2020 are projected to be at 9.6% & 8.8%. For the month of September 2019 stocks which were at highest performing were Tata Motors Ltd, Bajaj Finance Ltd & Bajaj Auto Vedanta Ltd have seen upward price movement of 20% , 17% & 15% respectively. Yes Bank Ltd, HCL Technologies Ltd Sun Pharmaceutical Industries Ltd saw downward price movement of -6%, -3% and -3.2% respectively. As on 20 September 2019 the benchmark index (S&P BSE Sensex) closed at 38,014.62. The earnings estimates for HDFC Bank, the highest weighted stock in the index were at 98.1% and 32.2% for FY20 and FY21. The earnings estimates for FY20 and FY21 for Reliance Industries, the second highest weighted stock in the index were at 18.3% and 22.7% respectively. According to consensus estimates, as on September 20, 2019 the estimated P/E for India’s stock market (Sensex) are 24.5X, 18.5X and 15.5X for FY19, FY20 and FY21 respectively. We maintain an “Attractive” rating of 3.0 stars for the Indian equity market.



PAGE 12

MARKET OUTLOOK

MARKETS REVIEW

GREATER CHINA

China listed corporations on aggregate (as gauged by the A shares) saw earning per share estimates of 0.75CNY and 0.86CNY in 2019 and 2020 respectively, down previous month. Over the month of August, the market’s performance was mixed: most sectors continued previous earnings downgrade, the bottom performing sectors are Financials and Telecommunications, with -3.7 and -4.5% decrease respectively. On the other hand, Consumer Staples and Health Care sector recorded approximately 9.8 and 8.7% increase respectively in August. For HK listed corporations, on an aggregate basis (as gauged by all HK stocks), saw earning per share estimates of 0.77 CNY and 0.85 CNY in 2019 and 2020 respectively, slightly lower than the data we saw in the previous month. We maintain our view that the Consumer, TMT and Industrials sectors will outperform China A market in 2019. By the end of August, Consumer and TMT sectors have outperformed the SSE Composite Index by 54.8 and 9.2% respectively. We believe that the Industrials sector may benefit from the new policy on local government special purpose bonds and thus rerate upwards. Leading indicators have improved but other economic data continue to come in mixed. The Caixin China General Manufacturing PMI rose to 50.4 in August 19, beating market consensus of 49.8. Exports from China dropped -1% y-o-y in August 19 while, Imports to China fell -5.6% y-o-y for the same period. Furthermore, consumer price inflation grew 2.8% y-o-y in August 19, resulting from the persistently high pork prices following an outbreak of African swine fever. Also, the producer price index (PPI) declined -0.8% from a year earlier in August 19, following a -0.3% decrease in June 19. On the consumer front, retail sales rose 7.5% y-o-y in August 19, down from 7.6% y-o-y in July 19. The seasonally adjusted Nikkei Hong Kong PMI declined to 40.8 in August from 43.8 in July 19, marking the lowest reading since February 2009; we believe the downturn trend mainly results from the escalation in the US-China trade friction as well as large scale political demonstrations. Additionally, the seasonally adjusted unemployment rate in Hong Kong remained unchanged at 2.9% in August 19. Hong Kong’s foreign exchange reserves decreased slightly to 432,800 USD Million in August 19 from 448,400 USD Million in the previous month. Taiwan’s seasonally adjusted headline PMI came in at 47.9 in August 19, down from 48.1 in July 19, and remained in the contraction zone. In addition, exports increased 2.6% y-o-y in August 19, reversing from a -0.5% y-o-y decrease in July 19, driven by sales of parts of electronic products. Additionally, imports decreased -2.7% y-o-y in August 19, up from a -5.4% y-o-y decline in July 19. This largely stems from lower purchases of metal and chemicals products. As of 18 September 2019, the CSI 300 Index is currently trading at estimated PE ratios of 12.8X and 11.2X based on estimated earnings in 2019 and 2020 respectively, a discount to its fair value of 13.0X, while the HSML100 Index is trading at 8.7X and 8.1X (based on estimated earnings in 2019 and 2020 respectively) as compared to our fair PE of 12.0X. We continue to prefer H-shares to the onshore market. We maintain our 4.0 Stars “Very Attractive” rating for the onshore (A) Chinese equity market. Moreover, the Hong Kong equity market is currently trading at estimated PE ratios of 10.7X and 10.0X based on estimated earnings in 2019 and 2020 respectively, below its fair value of 12.0X. Therefore, we maintain our 4.5 Stars “Very Attractive” rating for Hong Kong. Taiwan is trading at estimated PE ratios of 16.6X and 15.1X based on 2019 and 2020 earnings estimated respectively, slightly higher than our fair PE ratio of 15.0X. We thus maintain a 4.0 Stars “Very Attractive” rating for Taiwan.

China: Offshore (H) 4.5 Stars — Very Attractive, Onshore (A) 4.0 Stars — Very Attractive

The Caixin China General Manufacturing PMI rose to 50.4 in August 19, beating market consensus of 49.8

Exports fell -1% y-o-y in August 19, reversing from a 3.3% y-o-y increase in July 19

Imports fell -5.6% y-o-y in August 19, unchanged from the data in the previous month

Consumer price inflation stood at 2.8% y-o-y in August 19, following a 2.8% increase in July 19

Producer price index declined -0.8% y-o-y earlier in August 19, following a -0.3% decrease in July 19

Retail sales rose 7.5% y-o-y in August 19, down from 7.6% y-o-y in July 19

Hong Kong: 4.5 Stars—Very Attractive

Nikkei Hong Kong PMI decreased unexpectedly to 40.8 in August from 43.8 in July 19

Unemployment rate held steady at 2.9% in August 19, unchanged from the previous month

Foreign Exchange Reserves in Hong Kong decreased slightly to 432,800 USD Million in August 19

Taiwan: 4.0 Stars — Very Attractive

Headline PMI came in at 47.9 in August 19, down from 48.1 in July 19

Exports increased 2.6% y-o-y in August 19, reversing from an -0.5% y-o-y decrease in July 19

Imports decreased -2.7% y-o-y in August 19, up from a -5.4% y-o-y decrease in July 19



PAGE 13

EMERGING MARKETS

MARKET OUTLOOK

MARKETS REVIEW

Brazilian corporations on aggregate (as gauged by the Bovespa Index) saw earnings estimates being revised downwards by -0.3% for September

2019 and downwards -1.5% for September 2020 (as of 26 September 2019). Over the past month, most sector saw earnings downgrade except

Real estate, Industrials and Financials. The Materials sector had the largest earnings downgrade again, amongst all the sectors, by -16.7%. Over in

Russia, companies (as gauged by the RTSI$ Index) saw their earnings estimates for September 2019 downgraded by -0.4% and September 2020

downgraded by -0.04% respectively (as of 26 September 2019). Most sectors saw earnings downgrades. The Industrials sector saw the most

earnings downgrade in the month of September as earnings estimates were revised downwards by -11.3%.

In terms of recently-released economic data for Brazil, key indicators displayed positive results. The manufacturing PMI rebounded to expansionary

territory while services PMIs stayed in expansionary territory (above 50). Hard data improved from prior month, despite an apparent slowdown in the

economy. Retail sales rose 4.3% year-on-year in July, up from prior month’s -0.3%, pointing to a resilient domestic demand. While economic data

has improved over the month of August, we believe Brazil’s economy is still moderating and it underscores the importance of a passing of pension

reform bill to support the economy. Overall, we expect the pension reforms to be passed as early and likely as October and will restart growth and

support the longer-term economic outlook.

Over in Russia, most leading indicators improved while inflationary pressures continues to subside. In terms of leading indicators, the manufacturing

sector (reflected by the manufacturing PMI) improved in August, coming in at 49.1. Russia’s services sector (reflected by the services PMI)

rebounded to 52.1 for the same period. Data related to domestic consumption have yet to show meaningful signs of improvement, after its initial

softening. Year-on-year real retail sales growth dipped slightly, coming in at 0.8% year-on-year. However, on the plus side, inflation (driven by Jan’s

VAT tax) is showing signs of subsiding as Aug’s CPI came in at 4.3% year-on-year. As such, this allows the central bank of Russia to engage in

further rate cuts. Overall, the downturn in growth momentum could persist but growth will not fall off the cliff as Russia will get policy supports from

monetary easing and upcoming fiscal stimulus.

Over the month of September, Brazilian equities was up 1.6% in SGD price terms (-3.3% in local currency terms) as of 26 September 2019. The Bovespa Index is now trading at 13.7X and 12.0X 2019’s and 2020’s estimated earnings, as compared to its fair PE ratio of 11.5X. Given current headwinds to economic growth, we believe that a star rating of 2.5 Stars “Neutral” continues to be warranted for Brazil. As for Russia, the RTSI$ Index recorded a 4.5% gain in SGD price terms (5.1% in USD terms) as of 26 September 2019. Consequently, the RTSI$ Index trades at 6.2X and 5.9X for both 2019’s and 2020’s estimated earnings, as compared to its fair PE ratio of 7.0X. With that, we maintain our star rating of 3.5 Stars “Attractive” for Russia.

BRAZIL: 2.5 STARS – NEUTRAL

Manufacturing PMI came in at 52.5 in Aug 19, up from 49.9 in Jul 19

Services PMI came in at 51.4 in Aug 19, down from 52.2 in Jul 19

Retail sales rose 4.3% y-o-y in Jul 19, up from -0.3% y-o-y rise in Jun 19

Industrial production fell -2.5% y-o-y in Jul 19, up from upwards revised -5.9% y-o-y increase in Jun 19

IPCA inflation rose 3.4% y-o-y in Aug 19, up from a 3.2% y-o-y rise in Jul 19

FGV consumer confidence came in at 89.7 in Sep 19, up from 89.2 in Aug 19

RUSSIA: 3.5 STARS – ATTRACTIVE

Manufacturing PMI came in at 49.1 in Aug 19, up from 49.3 in Jul 19

Services PMI came in at 52.1 in Aug 19, up from 50.4 in Jul 19

Industrial production rose 2.9% y-o-y in Aug 19, down from a prior 2.8% y-o-y rise in Jul 19

CPI rose 4.3% y-o-y in Aug 19, up from a 4.6% y-o-y gain in Jul 19

Unemployment rate came in at 4.3% in Aug 19, down from 4.5% in Jul 19

Real retail sales rose 0.8% y-o-y in Aug 19, down from 1.1% in Jul 19



PAGE 14

HKG BONDS BENCHMARK YEARS TO MATURITY

OFFER INDICATIVE YIELD (%) AS AT 31 AUG 2019

OFFER INDICATIVE YIELD (%) AS AT 24 SEP 2019

HKGB, Coupon 1.78%; Maturity 08/20/2020 2 year 0.91 1.801 1.667

HKGB, Coupon 1.09%, Maturity 06/05/2023 5 year 3.62 1.280 1.330

HKGB, Coupon 2.39%, Maturity 08/20//2025 7 year 5.91 1.070 1.189

HKGB, Coupon 2.49%, Maturity 08/22/2028 10 year 8.92 1.043 1.174

HKGB, Coupon 2.24%, Maturity 08/27/2029 15 year 9.93 1.013 1.168 OFFER YIELDS INCLUDE SALES CHARGE OF 0.1% AND COMMISSION CHARGE OF 0.3%

SOURCE: IFAST FINANCIAL

OVERNIGHT 1-WEEK 1-MONTH 2-MONTH 3-MONTH 6-MONTH 12-MONTH

30-Apr-19 2.36 2.18 2.11 2.09 2.08 2.12 2.32

31-May-19 1.97 2.00 1.98 2.06 2.14 2.21 2.37

30-Jun-19 2.97 2.76 2.53 2.46 2.46 2.40 2.41

31-Jul-19 1.75 1.80 1.93 2.23 2.28 2.31 2.31

31-Aug-19 1.31 1.58 1.94 2.24 2.33 2.36 2.41

24-Sep-19 0.39 1.58 1.88 2.17 2.25 2.33 2.35

SOURCE: HKMA

COUNTRY / REGION PARAMETER CPI VALUE ON 31-JUL-19 (YOY)

CPI VALUE ON 31-AUG-19 (YOY)

BENCHMARK INTEREST RATES AS AT 23-SEP-19

US CPI 1.80% 1.70% 2.00%

Europe CPI 1.00% 1.00% 0.00%

Japan CPI 0.50% 0.30% 0.10%

Indonesia CPI 3.32% 3.49% 5.25%

Malaysia CPI 1.40% 1.50% 3.00%

South Korea CPI 0.60% 0.00% 1.50%

Hong Kong CPI 3.30% 3.50% 2.25%

Thailand CPI 0.98% 0.52% 1.50%

China CPI 2.80% 2.80% 4.35%

Taiwan CPI 0.38% 0.43% 1.38%

India WPI 8.59% 5.98% 5.15%

Singapore CPI 0.40% 0.50% 0.08%

*BENCHMARK INTEREST RATE HAS BEEN CHANGED SINCE LAST MONTH

BOND MARKET REVIEW

BONDS

HONG KONG INTERBANK RATES (HIBOR)



PAGE 15

BOND CHART OF THE MONTH

Historical Yields of US Treasuries


Historical Yields of HKG Bonds


BOND MARKET REVIEW

Corporate Bond Spreads Against US 10-Yr Treasury


HKG Bond Yield Curve


For the fixed income portion, the journey to find value has been increasingly laborious as yield levels decline and credit spread tightens, even after the recent uptick in bond yields. Within the global bonds and US/Global high yield space, current credit spread levels are around, if not significantly below, historical levels. Negative yields, monetary easing, hefty fiscal stimulus and late-cycle risks are expected to persist as headwinds within these segments. Therefore, the road to find value within the global bonds and US/Global high yield space segments has become more challenging and thus, we no longer expect attractive returns and maintain our underweight position.) Nonetheless, other fixed income segments such as SGD-centric bonds, emerging market debt and Asian high yield remain attractive to us as current spreads level remain above historical average.



PAGE 16

STAR RATINGS REVIEW & UPDATE FOR END 3Q 2019

STAR RATINGS METHODOLOGY At the end of each quarter, we review our calls on the various regional and single-country equity markets under our coverage to assess each market’s attractiveness as an investment proposition both on a standalone basis, as well as with respect to other markets. In our quarterly star rating exercise, we look at key valuation metrics like PE and PB ratios, expected earnings growth, as well as excess earnings yield to determine how attractive a particular market is. In addition, we consider the economic outlook utilising both consensus forecasts, as well as our own assessment of longer-term economic prospects. Our methodology not only incorporates both top-down and bottom-up forecasts, but also includes qualitative adjustments where necessary to achieve reasonable estimates of target upside for each market under our coverage over a 3-year horizon.

3Q 2019 REVIEW AND CHANGES TO STAR RATINGS The third quarter of 2019, like the first, could be said to have surprised many market participants and commentators, particularly when US-Sino trade dispute escalated. However, the de-escalation also came as swift as it escalated. Equity markets worldwide sold off and recovered but were unable to pare losses. The MSCI AC World Index fell -0.3% over the quarter (in USD, as of 27 September 2019). In fixed income markets, performance was more positive, with global bonds as a whole, as represented by the JPMorgan Global Aggregate Bond Index posting a 1.3% gain (in USD terms) over the quarter. On a regional basis, the MSCI Asia ex Japan Index was hit hard by the escalation of trade dispute as it posted a 4.8% gain over the quarter (in USD terms). The broad emerging market equity index (MSCI Emerging Markets) fared similarly, posting a 4.3% loss over the same period. Conversely, European equities represented by the benchmark Stoxx 600 Index gained 1.3% in this quarter (in Euro terms). US equities, represented by the S&P500 Index, was the top performer, returning 1.3% over the same period (in USD terms). Investor sentiment has turned south in 2019, albeit recovering in recent month, as judged by the American Association of Individual Investors (AAII). In its latest survey results, investors who said they were bullish on the direction of the stock market in the next six months were measured at 35%, below its historical average. 37% and 28% of the investors remained neutral and bearish respectively (*Numbers may not add up to 100% because of rounding). While the number of bearish investors have fallen, the number has increased for neutral investors and this suggests that the bulk of investors are staying on the fence. As reinforced by AAII’s data, we still see risk aversion clinging firmly onto global equity markets despite them holding up relatively well in the face of much negative news flow and market events. We believe many investors are still holding back, as supported by depressed sentiment levels and the high percentage of neutral investors, therefore leaving ample cash to deploy. In such environment, we still see room for equity market to run and in particular, exciting opportunities in Asian equities. Despite the rally year-to-date, we are still positive on Asian equities as a whole. Valuation multiples remain relatively attractive relative to where we deem them to be fair, and as a house, we believe that there is more room to go for Asia ex Japan. Several major markets in the Asia ex Japan region also boast attractive growth prospects. We believe there is no need to be overly pessimistic on China’s economy. In our assessment, when China’s economy stabilises (several economic indicators have turn positive), we anticipate a wave of improvement in across Asian economies, particularly the trade-reliant ones.

MARKETS STAR RATINGS OUR 3 YEAR VIEW

Emerging Markets 4.5 Very Attractive

Asia ex-Japan 4.5 Very Attractive

Europe 2.5 Neutral

US 2.0 Unattractive

Japan 3.5 Attractive

SINGLE COUNTRY MARKETS STAR RATINGS OUR 3 YEAR VIEW

China 4.5 Very Attractive

Hong Kong 4.5 Very Attractive

South Korea 4.5 Very Attractive

Taiwan 4.0 Very Attractive

Russia 3.5 Attractive

Singapore 4.0 Very Attractive

Brazil 2.5 Neutral

Malaysia 3.0 Attractive

Thailand 2.5 Neutral

India 3.0 Attractive

Indonesia 3.5 Attractive

Source: iFAST Compilations



PAGE 17

STAR RATINGS REVIEW

REGIONAL STAR RATINGS US (2.0 Stars – Unattractive) Why we like it

1. Domestic-focused economy

With the global economy slowing down and exports-based economies more exposed, US being domestically driven

(consumption accounts for 60-70% of GDP) would be better sheltered against growth woes.

2. Quantitative easing

With several rate cuts already in place, the prospects of further easy money and quantitative easing could lead to more stock

buybacks and asset inflation, driving both equities and bond prices even higher.

What we don’t like

1. Valuations Have Improved But Relatively Higher Than Other Markets

US equities have seen an improvement in overall valuation multiples, with the S&P 500 Index currently trading at 18.1X 2019’s

estimated earnings (as of 27 Sep 2019). However, it remains relatively higher as compared to other developed and emerging

markets.

2. Exposed to late-cycle risks

Being in a late economic and credit cycle, US companies faces multiple headwinds to margins and thus, earnings growth

remains challenged. Similarly, economic growth remains challenged in a late-cycle and growth prospect remains muted. Year-

on-year GDP growth for FY 2019 , FY 2020 and FY 2021 are forecasted to be 2.3%, 1.7% and 1.8% respectively.

3. Increasing Tendency Towards Protectionism

The Trump Administration has continuously threatened the US’ trading partners over its trade deficit, and started leveraging its

executive power to impose trade tariffs on various sorts of goods the US imports.

An escalation of global tensions could hurt export-sensitive segments of the economy and put upward pressure on domestic

inflation. Real consumption could then suffer, dragging down real economic growth.

The unpredictability of tariffs threats could cause firms to hold back on capital expenditure plans, be it domestically or globally.

However, firms might decrease foreign investment and instead redirect it back to the US. However, with higher wages in the US,

firms face a difficult trade-off.



PAGE 18

STAR RATINGS REVIEW

Europe (2.5 Stars - Neutral)

Why we like it

1. International Companies Are Sound

MNC giants such as BMW, LVMH, Adidas, SAP and other well-known large caps are in good financial health and possess strong balance sheets

MNCs have exposure to overseas markets, benefiting from growth in other developed and emerging markets 2. Strong support from European Central Bank (ECB)

The ECB recently rolled out a reduction in deposit rate by 10bps to -50bps as well as tiering of interest applied to bank deposits with the Eurosystem.

These attempts are widely considered as new and aggressive package of measures to help achieve the ECB’s price stability target and thus, supports economic growth in the region

Why we don’t like it

1. Existing And New Reforms Need To Be Implemented

Not all countries have implemented all the reforms previously promised

Some countries, e.g. Italy, need to implement reforms to restructure their industries and work force and improve their efficiency and competitiveness

2. Growth Highly Reliant on Emerging Markets like China

In particular, the Germany economy; which is the largest economy in the Euro-zone, is highly reliant on growth in emerging markets like China. Thus, should growth in China slow more than expected, growth in central Europe will also take a hit

Other countries in the Eurozone (France, Italy) also rely on exports growth to other emerging markets other than China.

3. Political Uncertainty In The European Union (EU)

After months of new developments, Brexit is still looming over the EU. Being the second largest economy in the EU, the potential departure of the UK could hurt the EU as well

Although pro-EU centrist politicians have prevailed in elections in core EU countries thus far, there is still a whiff of populist sentiment in some parts (like Italy) which could affect investor sentiment and affect corporate decision-making



PAGE 19

STAR RATINGS REVIEW

JAPAN (3.5 Stars – Attractive) Why we like it:

1. 2Q Annualised GDP and Core Machine Orders look to be supportive.

Over the quarter, Japan annualised GDP was able maintain its positive growth. Japan's second quarter annualized GDP in 2019 rose by 1.8% quarter-on-quarter after seasonal adjustment, although lower than the previous value, it was much better than the market expectation of 0.5% increase. Behind this number we can see signs of the recovery in personal consumption as well as in corporate investment.

Japan’s core machinery orders rose 0.3% in July, and was able to maintain its positive growth momentum while beating the market

consensus of a 3.7% decline. The recent data suggested that corporate confidence has started to pick up. Companies in Japan are

starting to increase their corporate capital expenditures and are producing more machineries to meet the growing demand, a sign of

recovery in the economic growth.

2. Valuation remains attractive

Nikkei 225 index’s estimated PE for FY2019 and FY2020 were 15.4X and 14.2X respectively, which is below our estimated target of 18X.

Currently valuation remains attractive, earnings per share is still on an upward trend. Looking forward, we can still see improving revenue

and producer sentiment. We therefore view valuations as attractive.

Why we don’t like:

1. Exports and business sentiments are facing pressure.

Japan's exports dropped 8.2% year-on-year in Aug, down from the previous value of 1.6% decline, recording negative year-on-year

growth for nine consecutive months. Under the weakening external demand, Japan’s exports to some major parties continue to decline.

Similar to the previous quarter, the export data in this quarter highlighted the rising external risks for Japan’s export-led economy as the

pressure on exports means that the broader economy will also be under pressure. With the moderating global economy and the trade

dispute between Japan and South Korea, we think in the short term, Japanese exports will continue to be pinned down

Japan's Eco Watchers Survey Outlook diffusion index in Aug was 39.7, coming in worse than both consensus and prior value, and

remained below the contraction territory (below 50) for nine consecutive months. Looking ahead, we expect business sentiments to

remain muted given the external headwinds faced by the nation.

2. Trade dispute between Japan and South Korea. Sales tax is said to proceed as scheduled.

The trade dispute between Japan and South Korea has added pressure on Japan’s exports in the short term. As the majority of Japan’s semiconductor components are exported to South Korea, restricting exports to South Korea will undoubtedly have negative impact on Japan’s export data and economic growth as a whole.

The government will raise the sales tax to 10 percent from the current 8 percent as scheduled in October 2019 to help finance ballooning

social security costs. Although Japan government has developed a number of measures to offset the negative impact of a sales tax hike,

the previous time when sales tax was raised (in 2014) personal consumption for the first three months was reduced by nearly 5% on a

year-on-year basis.



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STAR RATINGS REVIEW

Emerging Markets (4.5 stars – Very Attractive) Why we like it:

1. Relatively Stronger Long-Term Economic Growth Trajectory

Healthier demographics, on-going trends of urbanisation and domestic consumption should drive long-term sustainable growth.

Emerging markets will likely post higher economic growth rates compared to their developed market counterparts. This would imply higher rates of earnings growth and stronger market returns for the EMs.

While highly reliant on exports for economic growth previously, emerging countries have since been focusing efforts on restructuring their economies towards sustainable domestic consumption (e.g. China and India).

2. Attractive Valuations And High Potential Upside

The MSCI Emerging Markets Index trades at estimated PE ratios of 13.1X and 11.6X for 2019 and 2020 respectively (as of 27 September 2019); as compared to its fair PE of 13.5X.

Relatively attractive when compared to their developed market peers. Why we don’t like it:

1. Not Entirely Decoupled From The West

Even as emerging markets have displayed increased resilience and are generally more insulated against negative developments in the developed markets, they are still not immune to developments in the West. They remain susceptible to the global trade environment and the fate of global commodity markets.

Trade-reliant markets may be affected by tariffs implemented by an increasingly protectionist US. 2. Susceptible to capital flows

As we have witnessed in recent months, capital outflows can be a key source of volatility for emerging market assets, making them vulnerable to swings in global investor sentiment.

3. Government Intervention and domestic political instability

Emerging market governments have shown themselves to be unafraid of interfering with free market operations which might led to decreased profitability various sectors.

Emerging markets are also more prone to political turmoil, especially from various political parties domestically. This might drive up uncertainty and volatility in its equity market.

ASIA EXCLUDING JAPAN (4.5 STARS – VERY ATTRACTIVE) Why we like it:

1. Attractive Valuations

Corporate earnings have stabilised and improved since late-2016, although earnings expectations have moderated lower it is still expected to be in positive territory

The MSCI Asia ex-Japan index trades at estimated PE ratios of 13.9X and 12.3X for 2019 and 2020 respectively, below its fair PE ratio of 14.5X (as of 27 September 2019)

2. Attractive long term potential

Despite a waning global demand, Asian markets still tend to benefit with their moats in cheap labour, trade deals and industry specific specialization

Markets such as China, India and Indonesia has crucial structural macro drivers (rising middle class, growing disposable income, population dividend etc.) working for them. On a long term basis, prospect of both economic and earnings growth remains extremely attractive

Why we don’t like it:

1. Not Entirely Decoupled From The West

While Asia has displayed increased resilience and become more insulated against negative developments in the developed markets, they are still not immune to developments in the West and are susceptible to the global trade environment and low commodity price environment

Trade-reliant markets may be affected by possible escalation in the US-Sino trade dispute 2. Susceptible to capital flows

Asian markets, particularly the emerging economies, are still susceptible to the trend in capital flows as witnessed during the exodus of foreign capital in 2013, which resulted in falling values of financial assets.

Susceptibility to foreign capital outflows is a key source of asset price volatility for Asian assets



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STAR RATINGS REVIEW

ASIA COUNTRY STAR RATINGS SINGAPORE (4.0 STARS – VERY ATTRACTIVE)

Why we like it: 1. Attractive Valuations and Fairly Appealing Dividend Yields

The Straits Times Index (STI) trades at estimated PE ratios of 12.6X and 11.9X for 2019 and 2020 respectively, below our estimated fair

PE ratio of 15.0X (as of 27 Sep 2019).

Estimated dividend yield of 4.3% and 4.4% in 2019 and 2020 respectively are appealing, which means that by being vested, an investor is being ‘paid to wait’ for valuations to improve.

2. Pro-Business And Investment Climate

Given Singapore’s pro-business government, the country boasts an attractive tax system and pro-business government policies.

Furthermore, Singapore offers strong political stability, government transparency, strict anti-corruption laws and a strong currency.

Combining this with the STI’s derivation of two-thirds of its revenues from the region, the index enables investors to capture on regional

growth.

Singapore ranked third in the World Economic Forum’s 2017-2018 Global Competitiveness Report, supporting the city state’s status as the gateway to the East for MNCs.

Why we don’t like it:

1. Dependence on Trade

Given Singapore’s small domestic market, the economy continues to be highly dependent on external trade. This sees the Lion City’s

economic growth dependent on growth of other economies (especially its major trading partners China & Hong Kong, Malaysia,

Indonesia, and the US).

The erratic behaviour of President Trump remains a crucial concern for global trade, as seen by the escalation of US-Sino trade dispute.



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STAR RATINGS REVIEW

Hong Kong (4.5 Stars – Very Attractive) Why we like it 1. Attractive valuation and positive earnings growth in H shares

The valuation of Chinese H-share market remains attractive compared to other markets. As of 18 September 2019, the HSML100 Index is

trading at 8.7X and 8.1X (based on estimated earnings in 2019 and 2020 respectively as compared to our fair PE of 12.0X.

2. Attractive dividend yield offers by Hong Kong blue chip stocks

Hang Seng index constituent stocks offer one of the most attractive dividend yield. As of end-August 2019, Hang Seng Index offers around 3.8% dividend yield. The dividend yield has increased from 3.55% in the previous month.

Why we don’t like: 1. Weak economic data

Recent economic data keeps missing market consensus: The seasonally adjusted Nikkei Hong Kong PMI decreased unexpectedly to 40.8 in August from 43.8 in July 19, marking the lowest reading since February 2009 and indicated a deterioration in the health of Hong Kong’s manufacturing sector. In addition, the seasonally adjusted unemployment rate in Hong Kong remained unchanged at 2.9% in August 19. We believe the downturn trend mainly results from the escalation in the US-China trade friction as well as large scale political demonstrations.

2. Political uncertainty

Although Hong Kong-China extradition bill was withdrawn by Carrie Lam’s government in September, we believe that the strike may have a negative impact on its international reputation and thus are likely to put off potential investors.

If current protest/strike extends and Hong Kong’s regular commercial activities were negatively affected, then Hong Kong might face long-lasting ripple effects.



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STAR RATINGS REVIEW

China (4.5 Stars – Very Attractive) China A – 4.0 STARS (Very Attractive)

Why we like it 1. Attractive Valuations and easing policy

The Chinese A-share market continues to deliver attractive valuations after the correction, over the past two quarters. We believe more easing

policy may be administered to counter economic slowdown, amid the trade conflict.

As of 18 September 2019, the CSI 300 Index is currently trading at estimated PE ratios of 12.8X and 11.2X based on estimated earnings in 2019

and 2020 respectively, a discount to its fair value of 13.0X.

2. China A-shares get net capital inflows

By the time the allocation by MSCI are finalised and completed, the A-shares will make up by about 3.3% of the MSCI Emerging Markets Index

(by the end of 2019). The move could trigger more than $80 billion of foreign inflows.

Aside from the MSCI inclusion, FTSE Russell are implementing similar inclusion over three separate tranches through to March 2020 in its global

benchmarks. We believe that the events may drive the A-share market valuation in the long run.


1. Escalation of trade war

Even though the increased tariffs on China will be delayed till October, tariffs are still pinning China’s economy down. The labelling of China as a

currency manipulator by the US has also raised global uncertainty.

Even though the trade talks has restarted, we believe China must make great compromise to reach an agreement in the end, and this may

negatively impact on domestic economy.



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STAR RATINGS REVIEW

Taiwan (4.0 Stars – Very Attractive) Why we like it 1. Companies move back from China

Issues with conducting business in China becomes one key reason that Taiwanese entrepreneurs are considering investing in Taiwan. As the escalation of trade frictions between China and US, increases in wages as well as stricter environmental rules, many Taiwan companies doing business in China start pulling out. Since the launch of Taipei’s incentive plan in January 2019, more than 30 Taiwanese companies have sought to return their operations to the island to take advantage of government incentives, mostly in the electronics, information, metal and machinery industries. We believe that these companies will boost local economy in the long run.

2. Valuations look attractive

According to market consensus, as at 18 September 2019, Taiwan is trading at estimated PE ratios of 16.6X and 15.1X based on 2019 and 2020 earnings estimated respectively, which is slightly higher than our fair PE ratio of 15.0X, and is relatively attractive in the global context.

3. Taiwan’s main semi-conductor producer expects strong growth in 2019

The worlds’ leading semi-conductors are located in Taiwan and Korea. Taiwan Semiconductor Manufacturing (TSMC) announced consolidated revenue of NT$241 billion and diluted earnings per share of NT$2.57 for the second quarter, beating market’s consensus. TSMC believes that they have passed the bottom of the cycle and expects the sales to continue ameliorate in the second half of 2019.given its large weightage in the index, it is likely to help boost the index performance.

Why we don’t like it 1. Corporate earnings sensitive to changes in external demand

Taiwan is an export-oriented economy and corporate earnings are highly correlated with other major economies like China, the US, Europe and Japan. The global economic slowdown resulting from protectionism and anti-globalisation will have a negative impact on Taiwan's export performance, especially the trade dispute between China and the US. In addition, uncertainties surrounding the pace of the global economic recovery especially in Europe, Japan and China may weigh on Taiwan’s economy and corporate earnings outlook.



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STAR RATINGS REVIEW

SOUTH KOREA (4.5 STARS – VERY ATTRACTIVE) Why we like it:

1. Semiconductor business is expected to recover in 2H19

Despite the drop in memory price due to overinvestment and weakening global demand, there are still some good news to support a rebound in 2H19. Samsung Electronics developed the industry’s first 3rd-generation 10nm-class DRAM for premium memory applications. The 10-nm 8GB DDR4 will be in mass production in 2H19. Moreover, the Samsung first foldable phone was also launched, receiving positive feedback from the market generally in spite of its high cost. We believe that these new products will be able to boost the demand for semiconductors as well as earnings for Samsung Electronic.

On the supply-side, major semiconductor producers are reducing their capital expenditure to overcome the overinvestment in current market cycle. We believe the memory price might see a pick up earliest in 4Q 19, given that the 2Q 19 figures had improved from that of 1Q19. From a long term perspective, we believe that 5G, Internet of Things (IoT), artificial intelligence (AI) and cloud services will be crucial drivers for this industry, hence, we remain optimistic about tsemiconductor’s long-term development.

2. Fiscal Stimulus to Boost Domestic Economy

The Korean parliament has put forward a record-breaking budget proposal for 2019 of 470.5 trillion won (USD 416.5 billion), of which 23.5 trillion won (5%) will be set aside for job creation. In total, 162.2 trillion won (34.5%) will be allocated to the health, welfare and labor sectors. The budget proposal can help propel South Korea’s economy forward as the public gets a boost to their spending power.

Why we don’t like: 1. Both internal and external threats drag economic growth in South Korea

Korea’s exports dropped for the ninth month consecutively due to a cooling global economy. August’s exports dropped by 13.6% year-on-year. The decline in exports was mostly due to decreasing global demand generally, especially from China, Middle East and EU. Given the lowered memory price and flaccid demand for semiconductor products in the first 3 quarters of 2019, we expect exports to continue to suffer in the short run. Additionally, the threat of a potential automobile import tariffs would further drag on Korean exports. Given the global economic slowdown and elevated household debt levels, the foundation of recovery may not be strong enough for South Korea.



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STAR RATINGS REVIEW

MALAYSIA (3.0 STARS – ATTRACTIVE) Why we like it

1. Private Consumption to Sustain Its Growth Momentum

The robust domestic consumption was the main driver for economic growth in 2Q19. The local private consumption is likely to be

the main driver for Malaysia’s economic activity to offset any possible slowdown in external activity due to the on-going trade

issue between US and China.

Monetary policy is expected to remain accommodative to underpin the private consumption and investment.

2. Revival of several mega-infrastructure projects to drive economic growth

The revival of these infrastructure projects, albeit at a lower scale, could be a strong driver for the local economic activity over the

next few years.

On top of the short to mid-term impact of creating employment and boosting the local economic growth, we believe the revival of such projects, especially the East Coast Rail Link (ECRL) will also help to improve the local tourism sector as well as foreign direct investment and external trade activities due to the better infrastructure quality and connectivity.

3. Potential beneficiary of trade war

Malaysia could be a potential candidate from prolonged trade war between the two global heavyweights as businesses look to source materials from other countries or considers relocating operations to countries to avoid tariffs. The argument is supported by the surge in FDIs in Malaysia for the 1H 2019.


1. Unattractive Expected Earnings Growth on relative basis

In comparison with the regional market, Malaysia’s equities are expected to deliver rather unattractive earnings growth for 2019 (-

7.1%) and 2020 (+7.3%).

Several sectors such as Plantations, Healthcare, and Materials were affected by margin compression while national utility company Tenaga National incurred higher interest expense.

2. High Debt to GDP Level Could Cap Growth

Malaysia recorded a total government debt to GDP ratio of 51.8%, higher than that of its peers (average 41%). While a huge portion of the debt is denominated in Ringgit, the current debt level could still present some risks to the nation should there be any significant impact or headwinds from the external environment.

3. Earnings Downward Revision & Premium Valuation

Since the beginning of 2H2018, analysts have been downgrading the earnings growth for FBMKLCI Index given the unfavourable

new policies as well as the escalating global trade tensions.

As of 20th September 2019, the P/E ratio for Malaysia’s equity market stands at 16.7x for 2019, trading at a premium to our fair PE of 16.0x.



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STAR RATINGS REVIEW

INDONESIA (3.5 STARS – ATTRACTIVE) Why we like it 1. Indonesian government pushed through various fiscal policies to boost growth

The government has raised the threshold for luxury sales, reduced income tax rate for infrastructure-related securities, provided corporate tax breaks for labour-intensive industries and increased tax relief quota by three folds for research and development costs for companies.

The government has also announced a plan to reduce corporate tax from the current 25% to 20% over the next two years, including lower tax rates for newly listed companies;

These measures could attract foreign investors and businesses could provide a leg-up to economic growth.

2. Bank Indonesia (BI) resumes monetary support to spur growth

Against a backdrop of a relatively dovish Fed, BI has reduced its benchmark interest rates for the third consecutive month. It has also lowered its Deposit Facility rates and Lending Facility rates to boost borrowing and lending appetite.

These moves are aimed to encourage bank lending and expand economic financing activities.

3. Attractive from a longer-term perspective

As of 20 September 2019, current and forward PE stood at 15.1X and 13.4X respectively against our fair PE of 15.0X. Earnings growth are at 10.6% and 13.2% for 2019 and 2020 respectively.

While current valuation is at a slight premium compared to our fair PE, we think Indonesian equities are still looking relatively attractive compared to its ASEAN peers from a longer-term perspective, where earnings growth is expected to drive most of the returns.

What we don’t like 1. Indonesia’s government may struggle to reduce the fiscal deficit

Setting infrastructure spending aside, the government has announced a slew of tax cuts to boost growth. Thus, expected increase in government spending will strain the fiscal pockets and could impact its fiscal profile.



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STAR RATINGS REVIEW

Thailand (2.5 STARS- NEUTRAL) Why we like it

1. Bank of Thailand (BoT) remains proactive in maneuvering its policy and tools

The BoT has lowered interest rates to help cushion the foreseeable impact stemming from escalation of trade war. It has also reduced short-term note issuance to curb foreign inflows that have fueled Baht’s strength;


1. Escalation of trade tension means prolonged economic pain for Thailand

Thailand’s exports growth has been hovering within the contractionary territory, and the top-line growth over 2Q2019 has surprised to the downside. Increasing trade tensions between the US and China likely translates to more downside risks to Thai exports, which account for more than 60% of Thailand’s GDP growth;

Domestic consumption has shown signs of weakness amid slowing manufacturing activities and tourism sectors, which employ more than 20% of the workforce in Thailand, the prolonged impact from the trade war could have adverse impact on Thai consumers, which are also burdened by high household debts.

2. Premium valuation is the ball and chain of Thai equities

As of 20 September 2019, year-to-date, analysts have slashed earnings forecast for FY2019 and FY2020 by -13.9% and -12.0% respectively. Earnings growth stood at -7.3% and 11.0% respectively for FY2019 and FY2020.

Current and forward PE stand at 16.5X and 14.9X respectively against our fair PE of 14.0X. Current valuation is hovering above its historical mean and the +1SD level, leaving the index susceptible to valuation contraction.



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STAR RATINGS REVIEW

India (3.0 STARS- ATTRACTIVE) Why we like it

1. Reduction in corporate tax

The finance minister reduced the basic corporate tax rate to 22% from 30% for domestic companies that do not avail exemption/incentive. The effective tax rate for such companies would be 25.17% inclusive of surcharge and cess.

In order to provide boost to the manufacturing sector and its ‘Make-in-India’ initiative, the government will also lower the corporate tax rate to 15% from 25% for those domestic companies that came into existence on or after Oct 2019.


1. Cyclical slowdown

Government data showed that the growth of the Indian economy slowed for the fifth consecutive quarter to a more than 6-year low of 5.0% on a year on year basis in the first quarter of FY 2020.

According to the Annual Report by the Reserve Bank of India (RBI), the current economic slowdown is believed to be cyclical in nature, plagued with deep structural issues that requires urgent reforms.

2. Exposed to oil prices

As India’s import has a large exposure to oil, prices can significantly affect trade balance. Therefore, the recent supply shock has caused volatility in oil prices.



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STAR RATINGS REVIEW

EMERGING MARKETS COUNTRY STAR RATINGS

Brazil (2.5 stars –Neutral) Why we like it

1. Accommodative Monetary Policy Policy-makers have cut interest rates to a new low of 5.5% – the lowest level in history. The central bank has expressed the

possibility of further cut if economic growth remains sluggish.

2. Secular Growth Story Still Intact

While Brazil’s economy is still recovering from its recession, which it entered in 2014, its long-term structural growth story as an emerging market still remains intact. Its positive demographic trends and huge growth potential offers investment opportunities that long-term investors would find compelling.

3. Strong Investment And Pro-Business Narrative Brazil’s new president, Jair Bolsonaro, has plans to further roll out reforms and pro-business policies. If such policies were to

be implemented successfully, Brazil will have strong growth and investment prospects backed by renewed investors’ confidence.

Why we don’t like it 1. Heavy Trade Dependence On Major Markets

As Brazil’s economy is highly dependent on the commodities trade, the slowdown in US and China has softened its growth outlook. Overall, the economy’s dependence on exports to US and in particular, China remains a key risk.

2. Unsustainable Fiscal Deficit

Brazil’s generous pension system is contributing to its overly large fiscal deficit, which has dampened investor’s and business’ confidence. This might hinder future economic growth if left unresolved. Despite significant progress on pension reforms in congress and the lower house, it has yet to be passed.



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STAR RATINGS REVIEW

Russia (3.5 stars – Attractive) Why we like it

1. Attractive Valuations and dividend yields

Years of sanctions have resulted in drastic selloff in the Russian equity market, which is currently trading at depressed valuations levels. Yet, many of the Russian corporates rank among global industry leaders and are generating healthy profits.

As sanctions threat subside, Russian equities has rerated while the Ruble has strengthened. Also, dividend yields remain one of the highest in the emerging market space.

2. Solid External Accounts

Russia’s external accounts remains strong with its current account surplus and international reserves remaining at high levels relative to history. External debt has also fallen tremendously in 2018, courtesy of the deliberate efforts by the Russian government. Overall, the strong external accounts make Russia more impervious to external shocks.

3. Dominant player in the energy-Related Businesses

Russia is one of the top producer of crude oil globally. It is also the second largest producer of natural gas, behind the United States. With Russia furthering its expansion into the Asian coal market as well as the European natural gas market, we foresee Russia becoming a bigger player in the energy space.

What we don’t like 1. High Reliance On Commodity-Related Businesses

Being a commodity exporter, Russia’s economic outlook is highly correlated to the fate of commodity markets like crude oil, natural gas, and various sorts of base and industrial metals that the country exports. Lower energy prices affect export and budget revenues of the country.

2. Geopolitical Risks Remain Elevated

Geopolitical tensions between the West and Russia remains a viable threat, albeit it has deescalated in recent times. Corporate sanctions have been in place for more than 3 years – hampering economic growth and a return to normalcy.

The uncertainties surrounding sanctions threats will persist as an on-going concern, due to the deep political history and ideological differences between Russia and the West.

3. Structural Reforms Needed For Long-Term Growth

Issues relating to its poor labour market productivity as well as corporate and government inefficiencies continue to challenge the Russian economy. There is also a need for improvement in the quality of its services and independence of corporations.

Structural reforms are much needed to sustain long-term growth and prevent economic stagnation.

Documents

MONTHLY MORNING MEETING OCTOBER 2019