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Rebounded 6 consecutive weeks: Is the rally coming to an end?
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[Live Review] The New APAC in post-pandemic: Why this may be a perfect timing?

Speaker: Bruce Zhang CFA, CSOP Portfolio Manager, PM of the largest China government bond ETF in the World

Key Takeaways:
Part 1: About CSOP –The First Batch of China Managers Exploring Overseas Market
CSOP is established in HK in 2008 and our parent company is one of the largest Chinese AM with AUM at US$280bn as of last year*. CSOP is one of the largest ETF issuers in HK and manages half of the top 10 most actively traded ETFs as of 2021 in HK^.
CSOP is also the 1st Chinese AM expanding to Singapore and launched 3 ETFs and 1 money market fund in SG over the past 3 years. As an AM firm with Chinese background, CSOP is dedicated to promoting RMB internationalization and now in SG we are managing the world’s largest Chinese government bond ETF with AUM around USD1bn. CSOP is also deeply engaged in responsible investment and launched an APAC low carbon equity ETF recently and I’ll also briefly introduce this ETF in a later stage.
*Source : CSOP, as at the end of 2021
^ Source: CSOP, from 1 Jan 2022 to 31 Dec 2021
Part 2: Singapore Macro Review and Outlook
Singapore recovery is under way as its GDP remains resilient with latest quarter’s reading comparable to 2018 levels and better than 2019. Retail sales stay strong with a double-digit YoY growth. Export growth went down recently mainly due to base effect while industrial production is still in an expansionary mode.
Meanwhile, Singapore is benefiting from health domestic job market and household as well as tourist/population growth. We can see Singapore unemployment rate is even lower than pre-Covid level and SG household net asset is SGD2.25mn, which is quite impressive. On the other hand, Singapore tourist arrivals reached 750K in September, a good number on the back of a 5mn total population which is also expected to continue to grow in the future.
Also, the SGD strength should lead to higher demand for SG assets. As inflation yet peaked, MAS is expected to remain hawkish. This led to stronger Singapore dollar’s nominal effective exchange ratelevel and SGD has outperformed most of major currency peers and only mildly depreciated vs. USD YTD.
Source: Bloomberg as of September 30, 2022.
Part 3: China Marco Outlook
As compared to global peers, we still believe there are 3 opportunities in China, namely stimulus, policy and reopening.
After the 20th party congress, we believe high-quality development remains high priority and “development” as a key word is still mentioned most frequently. To double 2020 GDP by 2035, the implied annual GDP growth is 4.5% in the next 13 years. Also, the Party insists on high level opening and support and guide the development of the private sector.
Source: Morgan Stanley, CSOP
Specific to sectors, technology is still one of the sectors key to national security thus the Party targets to establish globally competitive and open eco system of innovation but emphasized on self-reliance and supply chain security.
Source: CSOP, UBS, Citi, Bloomberg.
Following the RMB rebound last week, the market has increased its expectations on some relaxation of China’s COVID-19 policies and a stabilization in the housing market. Looking forward, assuming China will see a moderate growth rebound on the back of a low base, RMB may appreciate modestly against the USD in 2023.
Part 4: Review of the Fed’s Rate Hike Path and Outlook
Moving to the US Fed rate hike path, US inflation is still at high level, but if CPI continues to slow from peak, like what we have seen recently and as indicated by US 10-year inflation breakeven, then interest rates are expected to peak soon. The implications are lower US yield with sooner-than-expected peak of terminal rate in 2023.
Consensus estimates is for the FOMC to raise rates by 50bps at its December meeting, but this may not alter the Fed’s terminal rate of about 5%. So, from this perspective, the defensively positioned money market fund may still see higher yield and even when the Fed finally stops and turns in late 2023 or 2024, USD MMF could still enjoy relatively high yield for a longer period before that.
Source: CSOP, Bureau of Labor Statistics, Bloomberg, as of 20221111.
Part 5: The next investment trend? Low Carbon, Long APAC
After market outlook, I'd like to talk about our recently launched APAC low carbon equity ETF $CSOP LOW CARBON US(LCU.SG)$ . It combines both APAC equity and low carbon themes. First, it captures APAC growth story as the region still delivers the highest growth rate (4%+) in the world, helping diversify the risk. Moreover, it grabs the theme of transitioning to a low carbon economy.
We worked with FTSE Russell to create a benchmark for our ETF. The index method in simple words is that the companies with less fossil fuel reserves and less operational carbon emissions will have higher index weights. And those companies with business activities of controversial weapons, tobacco, thermal coal, and UN global compact controversies are directly excluded.^ The back-testing showed it had a better performance than cap-weighted index.
^Source: FTSE Russell, as of 2022/8/31.
It may be a good time now to invest in APAC equity as its valuation is lower than historical average and much lower than US stocks. Also, if the Fed slows the pace of hike, APAC equity will tend to rebound quickly.
Source: Bloomberg; 2017/6/30-2022/9/20.
Part 6: Easy Access to Real Estate Market - S-REIT ETF
S-REITs rebounded sharply recently thanks to potential slower pace of hikes from the Fed amid lower-than-expected CPI. The 3Q 2022 earnings for underlying S-REIT names showed mixed/positive results, which should also support S-REITs from fundamental perspective.Compared to a few countries, SG REITs’ yield can still outperform its core inflation.
Looking into the 2023, iEdge S-REIT Leaders Index expected to deliver 6.1% in dividend yield in next year, which is quite impressive, also higher than SG core inflation.
General outlooks for some key sectors below:
Source: CSOP, JLP, JTC, CBRE, STB.
Source: CSOP, JLP, JTC, CBRE, STB.
A snapshot of $CSOP S-REITs INDEX ETF(SRT.SG)$ CSOP iEdge S-REIT Leaders Index ETF as below:
Source: CSOP,SGX. As of 16November 2022
Source: CSOP,SGX. As of 16November 2022
Part 7:CSOP USD Money Market Fund
Lastly is our SG domiciled USD MMF available on Moomoo's App under Cash+. I want to highlight again on its safety, low cost, diversification, and particularly competitive return (net yield now more than 3.5% which can be found in the App) with T+0 arrangement on Moomoo, which means it acts like a demand deposit but with much higher interest, and sometimes even higher than 1-year fixed deposit but can still capture the trend of current rising rate environment with creation/redemption flexibility.
Source: CSOP, as of November 17, 2022.
Source: CSOP, as of November 17, 2022.
QA Sessions
Q1: You talked about the sg recovery under way, may I ask what could be the most promising asset in your opinion? The S-REITs has been under pressure for quite long time, will 1st quarter of 2023 be the turning point?
Maybe we can do a simple scenario assumption.
1) Growth remains on track in SG with high inflation, historically when we have similar scenarios, equity performed the best in SG as their improved earnings could overwhelm high inflation and high interest rate.
2) Growth becomes slower on the back of global slowdown, but inflation remains high. Historical experience told us that S-REIT was the best performer as its relatively long weighted average lease expiry with increasing rents term provides a cushion vs. high inflation and its diversified debt maturity also diversify its interest rate risk.
It is also worth noting that, it is true that S-REITs have been under pressure this year, but it still outperformed US treasury bonds, US inflation-linked bonds, US stocks and HK stocks in USD terms YTD. This is because as compared to bonds, REITs have growth features helping cushion the rising inflation/interest rate impact; And as compared to equities, REITs relies more on rental growth, which is relatively stable and thus have lower volatility. Specific to S-REITs, it also benefits from SGD strength and strong corporate governance with ~70% of our underlying REITs have government linked sponsors.
Q2: What happened if the last rates hike stops next year? Any risk we should pay attention?
This would benefit most asset classes including equities, bonds and REITs. The rationale is straightforward - the lower interest rates support the market sentiment, and it translates into higher security prices. Fundamentally it also helps. Taking REITs as an example, if interest rate peaked and even starts to be lower, it will help REITs to gradually lower funding cost and manage their leverage in a more flexible way, thus they have more room to use the funding to conduct asset enhancement initiatives and make more valuable acquisitions.
As for risks, we must pay attention to the Fed's terminal rate. Any strong inflation and labor market reading in the US will raise expectations of the Fed terminal rates even the pace could be slower, and this could increase market volatility.
Q3: You also shared your insights regarding China Marco and RMB, and seems like China really start to re-open and COVID-related social restrictions, so what do you think of China Asset in general?
Yes, China started to test marginal reopening recently, but it takes time to achieve a full relaxation. Like other countries including Singapore, there would be back and forth under this process as China has large number of aged populations with relatively low vaccination rate. Thus, a see-saw session is highly likely in the next couple of months as the country needs to ensure the reopening will not directly threaten their people’s life, particularly the elderly people. If China gradually reopens, it could obviously boost its stock market as valuation is quite low and funding is not expensive. RMB could also be supported due to a more promising domestic growth.
Q4: Among Equity/ Bonds/ MMFs, what will you prefer most if you want to invest? And please share some insight with us.
From an asset allocation perspective, I suggest investors be ready to return to equity incl. REITs, as if the Fed releases some signals of slower hike and a clear terminal rate, it implies that inflation may return to the Fed's comfort zone and economy can't waiting further tightening. If it happens, investors should move in advance to capture the rebound before the Fed stops. This is also true to bonds as lower yield will boost bond price and help other countries' FX, particularly EM including Chinese RMB bond market.

One takeaway for the investors in going to the new year:
Be ready for the potential rebound! If you lock your money for 1 year in deposit, you may get 4-5% of the fixed yield. But maybe it’s time to place your money in a more risk and flexible asset, such as money market fund for the rebound.

Disclaimer
The investment products, as mentioned in this document, are registered under section 286 of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”). This material and the information contained in this material shall not be regarded as an offer or solicitation of business in any jurisdiction to any person to whom it is unlawful to offer or solicit business in such jurisdictions.
CSOP Asset Management Pte. Ltd. (“CSOP”) which prepared this document believes that information in this document is based upon sources that are believed to be accurate, complete, and reliable. However, CSOP does not warrant the accuracy and completeness of the information, and shall not be liable to the recipient or controlling shareholders of the recipient resulting from its use. CSOP is under no obligation to keep the information up-to-date. The provision of this document shall not be deemed as constituting any offer, acceptance, or promise of any further contract or amendment to any contract. The information herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others without the written consent of CSOP.
Advice should be sought from a financial adviser regarding the suitability of the investment and/or investment product before making an investment. Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not necessarily indicative of future performance. Investor should read the prospectus and product highlights sheet, which can be obtained on CSOP website or authorized participating dealers, before deciding whether to invest.
Investment involves risks. Investment value may rise or fall. Past performance information presented is not indicative of future performance. Investors should refer to the relevant Prospectus and the Product Key Facts Statement for further details, including product features and risk factors. Investors should not base on this material alone to make investment decisions.
For the Index Provider Disclaimers, please refer to the respective Products; offering documents.
This material should not be reproduced or made available to others without the written consent of CSOP.
This document is prepared by CSOP and has not been reviewed by the Monetary Authority of Singapore.
Contact us:
Telephone:+65 6279 2899
E-mail: investorservice@csopasset.com
Address:1 Temasek Avenue, Millenia Tower #18-03, Singapore 039192
Product Risk Disclosure
CSOP iEdge S-REIT Leaders Index ETF
• The CSOP iEdge S-REIT Leaders Index ETF (the "Sub-Fund") is a sub-fund of the CSOP SG ETF Series I ("Unit Trust"), which is a Singapore unit trust. The Sub-Fund is a passively managed index tracking ETF authorised under Section 286 of the Securities and Futures Act, Chapter 289 of Singapore. The units of the Sub-Fund (the "Units") are traded on the Singapore Stock Exchange (the "SGX").
• The Sub-Fund is not principal guaranteed and your investments may suffer losses. There is no assurance that the Sub-Fund will achieve its investment objective.
• The Sub-Fund's investment in the underlying securities is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.
• The trading price of the Units on the SGX is driven by market factors such as the demand and supply of the Units. Therefore, the Units may trade at a substantial premium or discount to the Sub-Fund's NAV.
CSOP US Dollar Money Market ETF
• The CSOP US Dollar Money Market ETF (the “Sub-Fund”) is a sub-fund of the CSOP ETF Series (the “Trust”), which is an umbrella unit trust established under Hong Kong law. The listed class of units of the Sub-Fund (“Units”) are listed on The Stock Exchange of Hong Kong Limited (the “SEHK”). These Units are traded on the SEHK like listed stocks.
• The Sub-Fund’s investment portfolio may fall in value due to any of the key risk factors below and therefore your investment in the Sub-Fund may suffer losses. There is no guarantee of the repayment of principal.
• The Sub-Fund seeks to achieve a return in US Dollars in line with prevailing money market rates. The factors influencing interest rates, and in turn the performance of money market instruments include, amongst other things, monetary policy, fiscal policy and inflation.
• The trading price of the Units on the SEHK is driven by market factors such as the demand and supply of the Units. Therefore, the Units may trade at a substantial premium or discount to the Sub-Fund’s NAV.
CSOP CGS-CIMB FTSE Asia Pacific Low Carbon Index ETF
• The CSOP CGS-CIMB FTSE Asia Pacific Low Carbon Index ETF (the “Sub-Fund”) is a sub-fund of the CSOP SG ETF Series I (“Unit Trust”), which is a Singapore unit trust. The Sub-Fund is a passively managed index tracking ETF authorised under Section 286 of the Securities and Futures Act 2001 of Singapore. The units of the Sub-Fund (the “Units”) are traded on the Singapore Stock Exchange (the “SGX”).
• The Sub-Fund is not principal guaranteed and your investments may suffer losses. There is no assurance that the Sub-Fund will achieve its investment objective.
• The Sub-Fund’s investment in the underlying securities is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.
• The trading price of the Units on the SGX is driven by market factors such as the demand and supply of the Units. Therefore, the Units may trade at a substantial premium or discount to the Sub-Fund’s NAV.
Please note that the above listed investment risks are not exhaustive, and investors should read the relevant Prospectus and Product Highlights Sheets in detail before making any investment decision.
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