What Happened in May
Emerging Asian equities delivered another month of decent returns in May. South Korea led the rally as political uncertainties receded after President Moon’s election victory. The advance was broad-based with rotation from value, economically sensitive areas to growth sectors. This resulted in a positive sector allocation for the growth-biased emerging Asia strategy, although this was more than offset by weaker stock selection.
Stock selection in China equities was the greatest detractor in May. The portfolio continues to be positioned with a significant overweight in consumer-related names, and these were again leading contributors last month.
Outlook and Strategy
With effect from 1 June 2017 MSCI upgraded Pakistan from frontier to emerging market status. Over time we believe this means Pakistan will attract more foreign investor interest, especially as the country will be one of the main beneficiaries of One Belt One Road. However, there was clearly some front running ahead of the index change, so we took the opportunity to lock in gains ahead of the index change.