What Happened in November
In the volatility that followed the unexpected US election results, Asia’s frontier markets were a relative safe haven. These markets display low correlations with the rest of Asia’s emerging markets and highlight the benefits of including them in a wider Asia portfolio. Our exposure to mid and small caps was a detractor but despite this overall the Fund modestly outperformed its benchmark this month.
The dominant mobile and consumer electronics retailer in Vietnam was among the top contributors following another set of good results. Its earnings are expected to continue growing in excess of 30% p.a. over the next 3 years, spurred by rapid store expansion across the country and by diversifying into other retail formats. Valuations remain undemanding at 11.7x forward price to earnings for a company that is well positioned to tap into the growing consumer power in Vietnam.
A Taiwan electronic manufacturer which produces parking systems and auto cameras that are key components of advanced driver assistance systems (ADAS), was the top detractor. In our view, the sharp share price declines after it missed earnings estimates were excessive. The company is readying a strong new pipeline of ADAS products for 2018. We believe ADAS is a structural theme with strong growth potential, as the auto industry moves towards autonomous driving and governments increasingly focus on road safety. We added to our existing position on share price weakness.
Outlook and Strategy
Trump’s unexpected election victory and the subsequent pick up in bond yields as well as stronger USD has resulted in a significant change in Asian markets. ‘Deficit’ countries, particularly in Asean, have become more vulnerable to capital flight, and therefore we have pared back our exposure in this area by reducing Indonesia and Philippines weightings.
The portfolio capital has mainly been reallocated to Korea where the market had been weak due to the political scandal engulfing the President. We believe this is unlikely to have a long lasting effect on the companies we invest into. We also have exposure to aircraft component manufacturers which have growing order books and good visibility of earnings. The technology sector remains our largest exposure and we added selectively last month.