November was a more positive month for equity markets with the FTSE All World Index gaining +9.2%. With inflation slowing faster than expected, European equity markets were among the best performing asset class, with the technology-driven US not too far behind. The Chinese equity market continues to majorly underperform. The Chinese market has suffered huge redemptions both from international institutional investors, as well as retrenchment from Chinese retail investors. Recent and current issues are the real estate crisis, haphazard regulation, slowing growth and geopolitical tensions.  

While there have been many false dawns, the Chinese authorities have put in place several measures that should shield the economy from the real estate problems and re-encourage economic growth. While the level of growth going forward is structurally lower than that enjoyed historically, the country continues to offer higher levels of growth than elsewhere. The price to earnings multiple of the Hang Seng Index has only been cheaper a handful of times: following the collapse of the Bretton-Woods gold standard in 1974 – 1975, during the tensions surrounding the hand-over of Hong Kong by the British in the early 1980s, and for six months in the great financial crisis of 2008. It is currently lower than after the Tiananmen Square massacre in 1989, and during the Asian financial crisis from 1997 – 1998. As the late, great Charlie Munger said, “There is no better teacher than history in determining the future”. Historically, rebounds in Chinese equity market valuations have been rapid once sentiment changes.

The Ashburton Global Leaders Fund (I class USD) returned +6.9%. Siemens, the German industrial conglomerate, provided the best return rising +27.2% on the back of positive earnings and guidance with record margins reported in both digital industries and smart infrastructure divisions. Charles Schwab also proved positive with a total return of +18.4% following results in October which showed lower decline in interest-earning cash balances than many had feared. There’s some speculation regarding how the company may benefit from future increased use of Artificial Intelligence which we see as a likely must-have for similar companies rather than necessarily a long competitive advantage. NXP Semiconductor shares returned +18.4% with in line earnings essentially recovering the losses of October.

Chinese holdings Ping An (-10.1%) and Alibaba (-9.3%) were the worst performing holdings. We have taken a fresh look at Ping An which continues to look very undervalued based on sensible assumptions for future growth. That said, the exposures to the troubled property sector within the 58% owned subsidiary Ping An Bank are non-trivial but we believe manageable. Rumours that the company was to provide support for Country Garden, the failing property development company, were strenuously denied but saw a one-day price fall of over -5% in the company’s shares indicating concern that Ping An could become an instrument of the state.

Alibaba reported earnings which, while in-line, suggest a continued loss in market share. What disappointed the equity market though was a reversal of the previously announced policy to split the company into separately listed entities. Chairman Joe Tsai indicated this was due to a desire to focus on growth rather than financial engineering. We interpret this as meaning that the view of the Board is that the uplift from pure play valuation offset by the low market multiple currently available in Hong Kong and China looks less attractive than the delivery of intrinsic value growth by focusing on the business and long term.

The oil sector declined generally with lower oil prices, SLB shares declined -6.5%.

On a proportional basis during the month, the position in Siemens was increased while SLB, Eaton and Samsung were trimmed. Trading activity was a little elevated too due to flow activity.

Charlie Munger died this month at the age of 99 and was one of the two most respected investment managers of all time. He was Warren Buffet’s right-hand man at fund holding Berkshire Hathaway. Berkshire’s succession plans have been in place for a long time. We join the global investment community in mourning the loss of one of the greatest investors of our time whose humility, wisdom and wit have been generously shared for so long.