Kenanga Ekuiti Islam Fund Report - August 2022

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1. August 2022 Market Review and Outlook Equity Market Review US equities rallied in the month of July and rebounded from the steepest 1H drop in 52 years . The S&P 500 rose 9.1% month-on-month (MoM), its best monthly performance since November 2020. Meanwhile, the Nasdaq posted its best monthly return since April 2020, with a 12.4% gain in July while the Dow Jones was up 6.7% MoM. The July rally was fuelled by better than expected earnings from some of the biggest US companies and investors’ expectations that the U.S. Federal Reserve (Fed) could be looking to slow its pace of interest rate hikes as the economy begins to cool. US inflation accelerated to 9.1% in June 2022, the highest since 1981 and above the consensus of 8.8%. The high inflation was mainly driven by higher food and gas prices. Food prices increased 1% MoM from May and 10.4% year-on-year (YoY), while the cost of gasoline increased 11.2% from May and energy prices rose 60% over the past 12 months. As widely expected, the Fed announced a second consecutive 75bps interest rate increase in July to combat runaway inflation. This brings the Fed funds rate to 2.25–2.50%. The Fed anticipates that ongoing rate hikes will be appropriate with its continued focus on reining in inflation. The Fed Chairman, Jerome Powell did not rule out another ‘unusually high’ rate hike but signalled it will be data-dependent, giving less forward guidance. Powell also acknowledged signs that the US economy is slowing but does not think the US is in a recession, citing the unemployment rate which is still near a half-century low with solid wage growth and job gains. He also said that there will be a point where the Fed will start to slow hikes to assess their impact. Consensus expects another 50bps-75bps hike in September and 25bps hike each in November and December. US 2Q 2022 GDP fell at annual rate of 0.9% quarter-on-quarter (QoQ), after a 1.6% contraction in the first quarter and was below the market estimate of a gain of 0.4%. Business activities in the US fell in July, the first time in two years. The S&P Global Manufacturing PMI fell to 52.3, the slowest since July 2020 while preliminary PMI for the services sector declined to 47.0, the lowest since May 2020. Moving to Europe, the Euro STOXX 50 closed 7.3% higher in July boosted by data showing that the Eurozone economy expanded at a higher-than-expected rate of 0.7% in the second quarter. Eurozone inflation hit a record high of 8.9% in July from 8.6% in June, mainly due to the soaring core and food prices. The European Central Bank (ECB) announced an unexpectedly large rate rise, its first in 11 years. The ECB raised its benchmark deposit rate by 50bps to 0%, above its own guidance for a 25bps point move. The ECB indicated that future policy rate path will continue to be data-dependent, and will help to deliver on its 2% inflation target over the medium term. It also announced a new Transmission Protection Instrument (TPI) to help ensure smooth transmission of monetary policy. The TPI enables the ECB to purchase specific securities to counter “unwarranted market dynamics”. Meanwhile in China, equities fell in July following signs of a renewed crackdown on the tech sector, escalation of the property sector woes, rebound in COVID-19 cases and lack of major stimulus from the Politburo meeting. Asian markets were up for the month except for Shanghai and Hong Kong. The MSCI Asia ex-Japan Index fell by -1.7%, underperforming MSCI ASEAN Index which gained by 2.8%. In local currency, outperformers were India (+8.6%), Japan (+5.3%) and Korea (+5.1%). Underperformers were Hong Kong (-7.8%), China (-4.3%) and Thailand (+0.5%). ASEAN equities rose in tandem with global peers on expectation that the Fed may slow down the pace of interest rate hikes. MSCI ASEAN was up 2.8% in July with all ASEAN markets posting positive returns. In local currency; outperformers were Singapore (+3.5), Malaysia (+3.3%) and Philippines (+2.6%). Kenanga Investors Berhad Company No: 199501024358 Level 14, Kenanga Tower 237, Jalan Tun Razak 50400 Kuala Lumpur Tel: 03-2172 3000 Toll Free: 1800-88-3737 www.kenangainvestors.com.my 1 Strictly for Clients of Kenanga Investors Berhad
2. August 2022 Market Review and Outlook Locally , the KLCI Index rose by 3.3% in July to 1,492 points driven by better sentiment across global markets. As expected, Bank Negara raised the Overnight Policy Rate (OPR) by 25bps to 2.25% at the July Monetary Policy Committee (MPC) meeting. Consensus expects another 25-50bps rate hike this year and 25-50bps rate hike in 2023 for the OPR to reach 3.0% by end 2023. The International Monetary Fund (IMF) cut its economic growth forecast for Malaysia to 5.1% from 5.6% previously as it warned of an increased risk of a global recession. The Parliament had passed the proposed anti-party-hopping law, with more than two-thirds majority. The anti-hopping law, which is expected to come into effect in September, will likely be enforced before the next general election, and will likely lead to better political stability in the country. Meanwhile, Indonesia lifted its restrictions on the entry of its workforce into Malaysia from 01 August and agreed to integrate the existing Malaysian and Indonesian recruitment system. In July, foreign investors reverted to a net buy position of RM175 million, after a brief net outflow of RM1,282 million in June. This bring the cumulative foreign net inflow to RM6.3 billion YTD. All sectors except Energy (-3.2%) ended the month in the green, with best performers from Technology (+6.2%), Telecom (+4.2%) and Finance (+4.1%). Onto commodities, Brent crude declined for a second consecutive month, down 4.2% MoM to close at USD110/barrel on worries that recession could affect demand. Meanwhile, Crude Palm Oil (CPO) prices closed at RM4,289/month, dropping 12.6% MoM following Indonesia’s decision to temporarily cut its export levy to zero. Equity Market Outlook We expect volatile equity markets in the near term on the back of geopolitical tensions, high inflation, tighter monetary conditions across the globe and concerns on global economy slowdown/recession. The path of inflation and corresponding Fed policy will be key for global markets. While easing supply chain disruptions and lower commodity prices should help ease inflation, the tight labor market and sticky levels of shelter inflation could mean a higher base of inflation for longer. Meanwhile, Malaysia continues to benefit from economic reopening, with a post-lockdown cyclical rebound ongoing on the back of higher private consumption. Malaysia enjoys one of the lowest inflation rates in the region, due to various government subsidies which cap fuel prices and electricity tariffs. However, Malaysia still remains geared to global growth and economic conditions given its high dependence on exports. Investors will be closely watching the second quarter results season on how labor shortage and inflationary pressures will affect corporate earnings. Equity Fund Strategy Kenanga Investors Berhad Company No: 199501024358 Level 14, Kenanga Tower 237, Jalan Tun Razak 50400 Kuala Lumpur Tel: 03-2172 3000 Toll Free: 1800-88-3737 www.kenangainvestors.com.my Overall for Malaysia, we adopt a defensive stance, focusing on recovery themes and earnings resiliency amidst an inflationary environment. We continue to focus on companies where fundamentals remain solid. Sector wise, we prefer financials, consumer and industrials. For structural growth themes such as technology, we are buyers on market weakness for its longer-term growth potential. 2 Strictly for Clients of Kenanga Investors Berhad
3. Kenanga Ekuiti Islam Fund 3-year Fund Volatility 16 .8 (A fund under Kenanga OneAnswer™ Investment Funds) High August 2022 Lipper Analytics 10 Jul 2022 FUND PERFORMANCE (%) FUND OBJECTIVE Aims to achieve long-term capital growth through investment in Shariah-compliant securities. % Cumulative Return, Launch to 31/07/2022 250 200 Fund Category/Type Equity (Islamic) / Growth 150 100 Launch Date 23 April 2004 50 0 Trustee CIMB Commerce Trustee Berhad Kenanga Ekuiti Islam : 173.82 Designated Fund Manager Lee Sook Yee Annual Trustee Fee 0.07% p.a. # FUND SIZE * RM 12.86 million All fees and charges payable to the Manager and the Trustee are subject to the goods and services tax /sales and services tax/other taxes of similar nature as may be imposed by the government or other authorities from time to time. ASSET ALLOCATION (% NAV) * 69.4% 23.6% 76.4% 16.0% 84.0% Liquidity NAV PER UNIT * RM 0.6085 Jul 22 Dec 21 Jun 20 Dec 18 Jun 17 Dec 15 HISTORICAL FUND PRICE * Since Inception Date Highest RM 0.9246 9-Apr-21 Lowest RM 0.3492 29-Oct-08 SECTOR ALLOCATION (% NAV) * 30.6% July CALENDAR YEAR FUND PERFORMANCE (%)# Period Fund Benchmark 2021 4.30 -6.81 2020 16.07 10.14 2019 17.24 3.85 2018 -20.56 -13.52 2017 10.71 10.72 Source : Lipper, 31 July 2022 Redemption Charge Nil 1 2 3 4 5 Jun 14 Source: Novagni Analytics and Advisory Annual Management Fee 1.55% p.a. May FTSE Bursa Malaysia Emas Shariah Index : 71.68 CUMULATIVE FUND PERFORMANCE (%)# Period Fund Benchmark 1.38 1 month 2.20 6 months -7.32 -7.21 -12.35 -10.91 1 year 3 years 9.81 -10.57 5 years 0.50 -15.59 Since Launch 173.82 71.68 Sales Charge Max 6.50% June Dec 12 Jun 11 Dec 09 Jun 08 Dec 06 Benchmark FTSE Bursa Malaysia Emas Shariah Index Jun 05 Apr 04 -50 Equity TOP EQUITY HOLDINGS (% NAV) * MATRIX CONCEPTS HOLDINGS BHD KERJAYA PROSPEK GROUP BHD TELEKOM MALAYSIA BHD IHH HEALTHCARE BHD TIME DOTCOM BHD 5.7% 5.0% 4.7% 4.0% 3.8% Short Term Islamic Deposits and Cash Telecommunications & Media 9.7% Industrial Products & Services 8.9% Property 7.8% Construction 7.4% Consumer Products & Services 6.2% Technology 6.0% Utilities 6.0% Plantation 5.0% Health Care 4.0% Others 8.4% DISTRIBUTION HISTORY * Gross Distribution Date RM Yield (%) 10.30% 15-Apr-22 7.50 sen 9-Apr-21 11.04 sen 11.94% 25-Jun-07 - 30.6% Unit Split 3:5 * Source: Kenanga Investors Berhad, 31 July 2022 Based on the fund’s portfolio returns as at 10 July 2022, the Volatility Factor (VF) for this fund is 16.82 and is classified as “High”. (Source: Lipper). “High” includes funds with VF that are above 14.21 and less than or equal to 17.635 (source: Lipper). The VF means there is a possibility for the fund in generating an upside return or downside return around this VF. The Volatility Class (VC) is assigned by Lipper based on quintile ranks of VF for qualified funds. VF is subject to monthly revision and VC will be revised every six months. The fund’s portfolio may have changed since this date and there is no guarantee that the fund will continue to have the same VF or VC in the future. Presently, only funds launched in the market for at least 36 months will display the VF and its VC. The Master Prospectus dated 29 March 2019 and the Supplemental Prospectus (if any), its Product Highlights Sheets (“PHS”) or Supplemental Disclosure Document (“SDD”) (if any) have been registered with the Securities Commission Malaysia, who takes no responsibility for its contents. The fund fact sheet has not been reviewed by the SC. A copy of the Master Prospectus, Supplemental Prospectus (if any), SDD (if any) and the PHS are obtainable at our offices. Application for Units can only be made on receipt of application form referred to in and accompanying the Master Prospectus and/or Supplemental Prospectus (if any), SDD (if any) and PHS. Investors are advised to read and understand the Master Prospectus, its PHS and any other relevant product disclosure documents involved before investing. Investors are also advised to consider the fees and charges before investing. Unit prices and distributions may go down as well as up. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should note that the value of their investment in Malaysian Ringgit will remain unchanged after the distribution of the additional units. A Fund’s track record does not guarantee its future performance. Investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units.“Cooling-Off Period” or “Cooling-Off Right” is not applicable to EPF Member Investment Scheme (EPF MIS). Kenanga Investors Berhad is committed to preventing Conflict of Interest between its various businesses and activities and between its clients/directors/shareholders and employees by having in place procedures and measures for identifying and properly managing any apparent, potential and perceived Conflict of Interest by making disclosures to Clients, where appropriate. The Manager wishes to highlight the specific risks of the Fund are equity and equity-related securities risk, derivative risk and reclassification of Shariah status risk.