Asian Markets were mixed in April, in the absence of fresh factors, with the Hang Seng China Enterprises Index -0.5%, the Hang Seng Index +2.1%, MSCI Asia ex Japan Index +2.1%, FTSE ASEAN +1.5%, Thai SET Index -1.3%. Meanwhile, The Mekong Fund gained +1.3% .
Investors in Asia stayed on the sidelines, waiting to see how things play out in North Korea. Donald Trump, clearly emboldened by his publicity coup, bombing Syria and Afghanistan, seems to see geopolitical gains as low hanging fruit; whilst apparently following the Pentagon’s agenda. The political capital he gains abroad will be redeployed in pushing his domestic agenda. Already, the radical tax cuts he is proposing, which may not get past Congress, have boosted business confidence, and propelled the US stockmarket to new highs.
An obvious negative factor on the horizon is the Federal Reserve’s stated intention to drain liquidity from the market, by allowing natural attrition of its $4.5 trillion bond portfolio, as bonds are redeemed and not rolled over. However, with just US$ 250 billion coming due this year, the liquidity drain appears to be manageable.
Meanwhile The US$ fell back on Euro strength, after Marine Le Pen came second in the first round French Presidential election (although under the US electoral college system, she would already be President). The run-off election on May 7th, looks likely to put Emmanuel Macron in the Elysee Palace, and push Frexit talk back into the realm of bar stool debate. However, an upset victory by Le Pen, who is coming with a late run in the polls, could prove the trigger for a major global correction.
China’s economy continues to defy negative expectations, with non-performing loans remaining safely under the carpet. Trump’s apparent willingness to trade geopolitical gains for maintaining the status quo on trade, favours the Chinese. Xi can play the willing partner of the US in North Korea encirclement, whilst maintaining China’s trade deficits with the US. Although he needs to keep a floor on renminbi depreciation. We have added to some depressed conglomerates such as Beijing Enterprises, and hold BHP for iron ore demand recovery (in US & China) , whilst maintaining a short hedge on Hong Kong property counters.
We are maintaining exposures to oil and gold shares as a shield vs geopolitical risks, including Petrochina, Santos (also a takeover target), & Newcrest. Kingsgate on hopes of a breakthrough in talks over their Thai gold mine suspension, and Turquoise Hill as an undervalued copper/gold resource and the inevitable RIO takeover.
Our Thai portfolios have remained firm, underpinned by the strong Thai baht. We continue to buy prime Mekong plays on any weakness, including Ch. Karnchang, CP Foods, Airports Authority, Amata Vietnam, Bangkok Airways and Erawan Hotels. We even began bargain-hunting on Thai Airways ahead of management changes. In Korea, we picked up Kolao Holdings, the prime Laos/Cambodia motorbike & trucks company.
In Myanmar, although criticism continues to grow over government perceived inertia, the imminent passage of the new Companies Act will go some way towards reviving foreign investor enthusiasm.
We remain confident on Myanmar’s economic trajectory, and are actively looking for new investments, most likely in the bank and transportation sectors; as well as steering Max cement & Gold cement towards public listing.