Inflation data in the USA was again lower than expected. This resulted in expectations of a reduced pace of monetary tightening from the central banks. With liquidity still abundant equity markets generally rose. The FTSE All World Index rose 7.9% while, despite a large cash position held until mid-month, the Global Equity Growth Portfolio gained 10.3%.

November saw the kick-off of the football world cup held in Qatar. Football is popular in China and their government was keen to show their participation in the event. The country used one of their most precious diplomatic tools, the universally adored panda bear, to help promote their involvement. Global footage of unmasked crowds enjoying the world cup spectacle were beamed around the world. In China this sparked protests against Covid restrictions in the nation. Despite the current policies the number of covid cases in the nation continues to rise rapidly. Thankfully there has been no corresponding rise in deaths. This suggests that it could be like the Omicron strain which has generally been considered much less dangerous than earlier strains of interest.

Sentiment for Chinese equities has been extremely negative. In part this has been due to the reduction in growth outlook because of Covid policies. Our belief is that at some stage China will dial back their zero covid policies, resulting in a reassessment of near-term economic growth prospects as well as tempering global inflation. With case numbers spiking despite zero covid policies, a perception that risk of death from the latest strain may be low and considering protests, relaxation of the zero covid policies now seems more imminent. The fund’s allocation towards China, both direct and indirect, remains elevated and we would expect the fund to benefit from policy relaxation and improved sentiment towards the nation.

During the month the Chinese exposed names held in the fund provided the best performances with Ping An +53.0%, Tencent +40.5% and Alibaba +37.7%. All three companies would be clear beneficiaries of relaxation of the nation’s Covid policies, as well as improved sentiment.

The portfolio’s holdings providing the most negative returns during the month were Vermilion Energy -15.8%, Tripadvisor (-13.7%) and Ecolab (-12.6%). Vermilion provided a positive update during the month, showing a 79% increase in revenue and 65% increase in earnings, however, indicated the high likelihood of increased taxation in the year ahead. The holding was trimmed and a new position established in Patterson, an oil and gas service company that looks set to enjoy a robust order book while avoiding taxation risk. Ecolab provided a disappointing update which was suggestive of a lack of pricing power and an increase in competitive environment. The position was sold and a new holding established in Match.

New holding Match is the dominant provider of on-line dating applications including Tinder and Match.com. Following rapid growth since launch, this appears at first glance to have stalled. This has led to a derating of the shares from around $160 to the current circa $50 level. Our research indicates that growth is set to reaccelerate due to consumer’s willingness to pay for premium features as well as recovery in the core market of Japan which has been relatively slow to reopen from covid restrictions.

The other addition to the portfolio strategy during the month was an S&P 500 tracker in order to reduce cash levels.

With monetary policy and global liquidity continuing to tighten, it would be imprudent to think of the general rise of equity markets as anything other than a bear market rally. Pleasingly the general trend of reduced earnings expectations has not impacted the portfolio’s holdings as much as the wider market. The portfolio remains well positioned to benefit from China reopening however where, despite the recent market rally, we continue to see substantial value.  The portfolio will always shy away from areas of the market that seem excessively priced which is why relative to the Global Equity Growth peer group, it has performed exceptionally well this year. It is possible that some of these equities will regain stellar valuation multiples sometime in the future. We would rather buy and hold such companies only once they fulfil our investment criteria. A funded version of the strategy is to be launched in December.