Highlights:

#1
Following Powell’s dovish stance of expecting several rate cuts’ to be incoming for 2024, global equity continued November’s rally with S&P500 ending 2023 on a high note. In fact, S&P500 closed near 2021’s high and that effectively means that the index has fully recovered from the losses driven by the rate hikes in 2022.

#2
Airo-BOCA composite gained +0.87% in December 2023. The U.S Treasury, USD and technology sector were the key positive contributors for the month. However, the hedging positions within the technology sector somewhat offset these gains, acting as the main detractor for the month.

#3
Since November 2023, expectations of disinflation and rate cuts pivot have been the primary drivers of the equity market. While Airo’s stance is in-line with this expectation, however, we remain cautiously optimistic as the causes of underlying disinflation stem from two distinct fronts, each having potentially contrasting impacts on the equity market’s trajectory.

#4
U.S equity valuation remains a concern since November’s run-up. The Goldman Non-Profitable Technology index rallied a whopping +51% from October’s low to December’s high in a short span of two months! This dizzying run-up for a non-profitable index is a telltale sign of valuation exuberance emerging again.

#5
At Airo, our primary objective extends beyond merely outperforming benchmarks on a relative basis. More importantly, we endeavor to achieve sustainable, long-term positive absolute returns for our investors.

– – –

Dear Valued Investors,

Happy new year and wishing everyone a blessed & prosperous 2024 ahead!

During December’s FOMC meeting, Powell’s dovish stance confirm the market’s initial expectation of several rate cuts’ to be incoming for 2024. As such, global equity positive sentiment from November’s rally continued in December and saw S&P500 closed at 4,769 i.e. slightly higher than 2021’s closing at 4,766. This literally means that the S&P500 had completely erased 2022’s loss of -19% as if the massive rate hikes’ driven correction in 2022 did not matter!

Chart 1: S&P500 ~ Dec 2023 closed at 2021’s high & erased all 2022’s loss due to the rate hikes rhetoric

For the month of December 2023, Airo-BOCA composite gained +0.87%. The U.S Treasury, USD & technology sector were the key positive contributors for the month. However, the hedging positions within the technology sector somewhat offset these gains, acting as the main detractor for the month. Due to the rate cuts pivot expectation, broader market had continued to churn sizably higher on that expectation alone. As such, MSCI ACWI Index and S&P500 Index gained 3.83% and 4.42% respectively.

Table 1: AIRO-BOCA Composite Return ~ December 2023

Disinflation (i.e. lower inflation) is obviously good for consumers as it means consumer prices are no longer going up relentlessly i.e., increasing at a reducing pace. The main driver for lower inflation is the recovery of supply chain disruption due to the COVID-19 event. This is the supply side of the equation.

On the other hand, however, a continuous disinflation may mean that consumers’ demand growth could be weakening, and this can be deduced especially from a service sector’s perspective. ISM Services Employment PMI recorded a sharp negative growth in December at 43.3 from its November’s growth disposition at 50.7. In layman terms, this means the U.S’ services sector’s job market condition is deteriorating. The indirect interpretation of this is that dwindling demand could likewise be the cause of disinflation.

In other words, when a demand driven disinflation dominates the supply-side disinflation, this shall have a negative implication to equity prices going forward due to a slowing growth trajectory.

Chart 2: ISM Services Employment Index ~ saw a sharp negative growth in December 2023

U.S equity valuation remains a concern since November’s run-up. The Goldman Non-Profitable Technology index rallied a whopping +51% from October’s low to December’s high in a short span of two months! This dizzying run-up for a non-profitable index is a telltale sign of valuation exuberance emerging again.

Chart 3: Goldman-Sacs Non-Profitable Technology Index ~ sign of valuation exuberance

At Airo, our primary objective extends beyond merely outperforming benchmarks on a relative basis. More importantly, we endeavor to achieve sustainable, long-term positive absolute returns for our investors. In short, our strategic and tactical asset allocations are designed & managed so that the investment portfolios could serve the very purpose of wealth preservation and capital appreciation.

Jan 11th, 2024
​William Yii
CIO, CP Global Fintech Solutions

---

Disclaimer: Airo is a brand of CP Global Fintech Solutions Sdn Bhd (“CPFS”), licensed by the Securities Commission of Malaysia as a Digital Investment Management company. CPFS is authorised to carry out the business of fund management incorporating innovative technologies into automated discretionary portfolio management services offered to clients under a license issued pursuant to Schedule 2 of the Capital Markets Services Act 2007.

All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Historical returns, expected returns, and probability projections are provided for informational and illustrative purposes, and may not reflect actual future performance. CPFS assumes no responsibility for liability for your trading and investment results. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Past results of any trading system published by CPFS, are not indicative of future returns by that system, and are not indicative of future returns which will be realized by you.