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The end of year rally of markets came to a halt in December with the final month of the year delivering negative returns. The FTSE All World index declined 3.7%. The Global Leaders Fund (I class USD) declined 3.4% which, although moderately outperforming the index, given the geographic risk exposures of the fund was a little disappointing. On the positive side China continued along a path of reopening and the prices of equities with links to the country generally continued to rise. We have previously explained our thesis of the likely the end to the zero covid policies in the nation, the depressed share prices of Chinese equities, which help support the relatively high exposure to the country taken in the fund. Backwards looking economic data demonstrated the impacts of the historic zero covid policy with several downgrades to economic growth observed at a macro and micro level within China. Looking forwards we now expect this to reverse. Ping An was the best performing stock held during the month returning 8.2%.
Somewhat surprisingly, given the look through nature of equity investors, and the importance of China to the company’s future, shares of Kering were amongst the worst performing held declining 13.2%. We engaged with the company during the month to address concerns over unacceptable advertising by one of their major brands which senior management is addressing. While China is core to the future growth of Kering, their core market remains the USA where other consumer discretionary exposed holdings also performed poorly with Amazon declining 13.0% and Alphabet 12.5%.
The position in Comcast was sold, and those in Eaton and Schlumberger were trimmed.
The drivers for equity returns remain global liquidity, earnings, valuation and sentiment. The outlook for equities in 2023 and beyond still materially depends on what happens to inflation given the influence this has on the policies of central banks and hence global liquidity. If inflation continues to outstrip GDP growth, central banks will have little choice but to further drain liquidity. Earnings revision risk is generally tilted to the downside with consumers retrenching given increasing costs of living. There are however bright spots within certain sectors and geographic exposures. Valuation multiple of high growth companies have fallen dramatically though many remain at somewhat elevated levels compared to history.
While tough covid times ahead may be difficult for a largely unvaccinated nation, Chinese equities remain reasonably priced and continue to look attractive.
Dr James Cooke
Director of Investments and Head of Global Equities
Dr James Cooke is Director of Investments and Head of Global Equities for Ashburton Investments (International). James joined us from Asset Risk Consultants (ARC) where he was an Investment Consultant responsible for advising high net worth clients, trusts and charities on investment strategy, strategic asset allocation and discretionary fund manager selection. Previously he was based in Edinburgh, as an Investment Manager with SVM Asset Management where he spent seven years working on their World Equity strategy and providing ideas for other funds. During his time at SVM, the firm was consistently ranked within the top 10 UK based fund manager groups by FundCalibre. Prior to this he was a full member of the investment committee at Edinburgh Partners, recently acquired by Franklin Templeton, then managing over $10bn of global equity investments. He maintains a keen interest in Corporate Governance having previously advised firms on these matters with Towers Perrin, now Willis Towers Watson, before joining the investment industry. James is a CFA charterholder and holds a BEng(Hons) degree in Chemical Engineering from the University of Edinburgh, both an MSc and a PhD in Biochemical Engineering from University College London.
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Kathy covers global equities for Ashburton’s International team. She joined the team in South Africa in 2013 as an Equity Research Analyst for the African Equity Opportunities Fund, having moved home from the UK in 2010. Kathy has experience covering listed Pan-European retail stocks and South African listed retail sector. Kathy holds a Bachelor of Commerce (IT and accounting) degree from the University of the Witwatersrand, a Masters of Professional Accounting from the University of Southern Queensland, and is a Chartered Financial Advisor charterholder.
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