- The Ashburton Chindia Fund (I class USD) returned 8.3% during the month, ahead of the return from both the Chinese and Indian equity markets (7.2% and 6.9% respectively)
- Led by a small handful of stocks in the USA, global equity markets continued to climb in August with the global index increasing 6.2%. The FTSE Emerging Markets returns were more modest at 2.2%
- The beginning of September marks a full year of management of the Chindia strategy by the Ashburton Investments global equity team. Over this period the fund has returned 24.9% versus the FTSE EM Index return of 13.3%
Following a period of strong performance the position in Tencent was trimmed.
Despite reporting a 26% decline in sales, a positive outlook and good cost control meant that shares in Indian company Emami, the personal beauty company, returned over 50% during the month. Hong Kong-listed Shenzhou International was another standout performer, gaining over 35% during the month. The company, a supplier of sportswear giants Nike and Adidas, reported growth in net income of 4% during the first half of 2020 and described their factory expansion plans overseas. Another 10 portfolio holdings delivered double-digit returns. These are exceptional times.
Sinotruk was the biggest disappointment, declining 16.6%. Given that the firm reported a 24% growth in revenues and has a low valuation this was something of a surprise. Evidently stock market participants were not impressed by the increases seen in costs.
When the stock market returns close to annual return expectations in a one-month period some tempering of future return expectations is usually required. Towards the end of the month was the Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole. At this meeting US Federal Reserve chairman Jerome Powell said that the Fed’s decisions will from now on by guided by the “shortfall of employment from its maximum level” and no longer by deviations either side of full employment. He also outlined a move towards “average inflation targeting”. Overall, the implication is that monetary policy is likely to remain expansionary further into the future than the stock market had previously anticipated. This is likely to mean that asset prices continue to rise. Given the lack of available returns from other asset classes equities seem likely to continue to benefit.
Some element of inflation was previously thought likely to lead to higher interest rates and hence a re-evaluation of the market of traditional growth and value stocks. This now no longer looks likely in the medium term. It seems likely that this results in the continuation of the recent environment which is more favourable for stocks providing future earnings growth than traditional value-based investments. Long term this looks likely to lead to asset bubbles when market prices in some sectors increase over time and trade at far higher levels than fundamentals would suggest appropriate. Though everything is easy in hindsight, bubble spotting is notoriously difficult and claims of finding them are usually made by those wrongly positioned, at least in the short term.
The Chindia Fund aims to invest in quality companies offering growth at a reasonable price.