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 the Global Leaders Portfolio gained 8.3%. The large cash allocation taken by the portfolio acted as a headwind in comparison to the Global Leaders Fund (+10.4% I class USD) as did allocations away from Chinese holdings which performed strongly. Cash levels were decreased mid-month with the purchase of a MSCI World Index tracker.

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 as a result 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 risks of deaths 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%, Alibaba +37.7% and Kering +27.5%. 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 Amazon -5.8%, Apple -3.3% and the new position in the MSCI World Index -1.0%. General weakness in the outlook for the consumer discretionary sector is anticipated for 2023 and this is beginning reflect in consensus earnings estimates.

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 where, despite the recent market rally, we continue to see substantial value.