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, buoyed by Chinese exposures, the Global Leaders fund (I class USD)
outperformed gaining 10.4%.
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.
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.
month the Chinese exposed names held in the fund provided the best performances
with Ping An +53.0%, Alibaba +37.7% and TSMC +31.6%. Ping An and Alibaba would
be clear beneficiaries of relaxation of the nation’s Covid policies, as well as
improved sentiment. Shares of both companies have seen a substantial derating
over the last year. TSMC benefited from constructive in person talks held
between presidents Biden and Xi and de-escalation of tensions over the status
of the fund’s holdings provided a negative return during the month. Amazon
-5.8%, Apple -3.3% and Schlumberger -0.9%. General weakness in the outlook for
the consumer discretionary sector is anticipated for 2023 and this is beginning
to be reflected in consensus earnings estimates.
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 fund’s holdings as much as the wider market.
The fund remains well positioned to benefit from China reopening however where,
despite the recent market rally, we continue to see substantial value.
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