Investment Newsletter – May 2022
Experts warned there are three things in particular that, alone or together, could reverse all the progress of recent months and send COVID cases and deaths skyrocketing, potentially prolonging the pandemic into its third year or longer: China, Africa and mutations. These three things that might stand in the way of global endemicity. China is still struggling against its first major COVID wave. Meanwhile, Africa is equally vulnerable, where 85% of the people on the continent are unvaccinated. Finally, the virus itself could still surprise us. So far, SARS-CoV-2 has tended to mutate in ways that make it more transmissible, but less severe. None of the new lineages have managed to overcome our vaccines and antibodies. That could change.
As of 5 May 2022, the Federal Reserve raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and the US central bank’s chief made an appeal to Americans struggling with high inflation to be patient while officials take the hard measures to bring it under control. In a widely expected move, the Fed set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, and Fed Chair Jerome Powell said policymakers were ready to approve half-percentage-point rate hikes at upcoming policy meetings in June and July 2022. Meanwhile, 10-year Treasury yield surges as high as 3.1%, hitting highest level since 2018.
Furthermore, the Fed’s balance sheet, which soared to about USD 9 trillion as the central bank tried to shelter the economy from the pandemic, would be allowed to decline by USD 47.5 billion per month in June, July and August and by up to USD 95 billion per month starting in September 2022.
The stringent lockdown in Shanghai has had a ripple effect on businesses in the Yangtze River Delta region, an area of more than 160 million people encompassing Shanghai as well as the neighbouring Zhejiang and Jiangsu provinces. Together, they account for about a fifth of national gross domestic product. Completed goods are accumulating in factories because of trucking delays and warehouse closures, some manufacturers in the region say, while others have halted production after delivery of raw materials and supplies were disrupted. The logistics snarls in and around Shanghai further add pressure to an already battered global supply chain and to rising prices of goods in the US.
However, China has already adopted multi-pronged fiscal measures in tax and fee cuts, public budget expenditure and bond issuance to stabilize the economy and ensure its people’s well-being. Moreover, as part of its efforts to promote the dual circulation strategy and high-quality development, it has accelerated the establishment of a unified domestic market, deepened reform and opening-up across the board, and continued innovation-driven development. Meanwhile, Chinese companies are still attractive to investors given their price earnings ratio.
Southeast Asian stocks also stand out as a haven of sorts with expensive US shares hit by rising rates, European ones under pressure from the impact of Russia’s invasion of Ukraine, and Chinese equities pricing in a growth slowdown thanks to Beijing’s unwavering COVID-Zero strategy. International investors’ rotating out of China allocations has indirectly benefited select Southeast Asian markets.
