In September there was a much-anticipated cut in the US Federal Funds rate of 50bps with Federal Reserve Committee minutes mentioning confidence that inflation is moving sustainably towards the 2% target. Outside of the US, China announced a slew of prospective stimulus measures to revitalise their economy. We were encouraged by the commitment toward even further accommodative monetary policy measures in China and the subsequent market reaction. However, we are waiting for more tangible evidence of a sustainable recovery in economic growth given the soft credit uptake we have seen. Policies aimed at restoring consumer confidence, addressing the credit profile in the property sector and encouraging a sustainable turnaround in credit extension will go a long way in lifting potential economic growth. The bulk of performance in the month came from the Funds overweight positions to China. Overall, the Bloomberg World Index gained 2.5%, while the Ashburton Global Equity Growth Fund (I Class USD) gained 4.2%.

PDD Holdings, a Chinese ecommerce company, currently expanding internationally with its Temu Brand was up 40.3%. Ping An, a Chinese insurance company, which is highly leveraged to the Chinese stock market was up 38.6% and Yum China which has the exclusive rights to KFC and Pizza Hut in China was up 37.9%. All the Fund’s Chinese holdings were up strongly in the month.

On the negative side, Samsung Electronics was down 14.9% due to weaker DRAM and NAND prices. The weakness is being driven by sluggish demand for PCs and smartphones. However, we believe this is a near term headwind and that Samsung Electronics will benefit as a supplier of High Bandwidth Memory (HBM) products which support higher processing speed for AI servers where demand remains robust.  The HBM market is expected to grow substantially over the next few years due to AI investments by cloud service providers and rising demand for AI in enterprise on-premises servers. Samsung is currently trading below a 1.0x price to book ratio which is significantly below its long-term average of c1.3x reflecting the markets fears of an imminent memory downturn. However, along with Samsung’s near historical low capital intensity, we expect tighter DRAM capacity, robust HBM demand and a replacement cycle in PC and smartphone (AI devices to have higher memory content) to support pricing even if there is short term weakness.   

Puig was down 18.1% after the company reported a disappointing first half of 2024 although full year guidance was maintained. Fragrances & Fashion growth was strong; however, the miss was driven by weak make-up in China as consumers looked for cheaper options amid poor economic conditions. Recent stimulus measures in China which are supportive to consumers should bode well for PUIG, along with the expectations that Fragrances will continue to be a strong market. We therefore expect a better second half. The stock has derated substantially since its IPO which we view as unjustified trading on a 18x forward price to earnings compared to 24x at the time of listing.

Patterson was down 16.2% as the US saw lower rig counts in the month and due to overall weakness in oil prices as WTI dipped below US$70p/b. However, the stock has managed to regain some ground in October as WTI has now increased to above US$76p/b as Middle Eastern tensions continue to flare.

Heightened geopolitical tensions, the US elections and China stimulus or lack therefore of are likely to be shorter term market drivers into Q4. However, with a recent positive US jobs report, inflation moving in the right direction and comments by JP Morgan suggesting the bank is not seeing a consumer under stress, increasingly support the notion of a soft landing.

Disclaimer:

Waystone Management Company (Lux) S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF) (ref A00000395 & S00000734), Waystone Management Company (Lux) S.A. is a company located in Luxembourg, L-1273 Luxembourg at 19, Rue de Bitbourg. This document is Issued by Ashburton Fund Managers (Pty) Limited (The Investment Manager) (Reg number 2002/013187/07), which has its registered office at 3 Merchant Place, 1 Fredman Drive, Sandton, 2196, South Africa and is an authorised financial services provider (FSP number 40169), registered with the Financial Sector Conduct Authority (FSCA). Global Leaders Equity Fund and Global Equity Growth Fund are authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). In South Africa, the Fund(s) is/are approved for promotion under section 65 of the Collective Investment Schemes Control Act 2002. The Fund Prospectus, and further information including pricing and changes, may be viewed at the Fund’s representative office in South Africa: Ashburton Management Company (RF) Proprietary Limited (“Ashburton CIS”), of the same address. Ashburton CIS is an approved collective investment schemes manager regulated by the Financial Sector Conduct Authority and a full member of the Association of Saving and Investments South Africa. In the event a potential investor requires material risks disclosures for the foreign securities included in a portfolio, the manager will upon request provide such potential investor with a document, outlining potential constraints on liquidity & repatriation of funds; Macroeconomics risk; Political risk; Foreign Exchange risk; Tax risk; Settlement risk; and Potential limitations on the availability of market information. The value of participatory interests and the income from them may go down as well as up and is not guaranteed. Past performance is not necessarily a guide to the future performance. Where an investment involves exposure to a currency other than that in which it is denominated, changes in rates of exchange may cause the value of the investment to go up or down.

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