Premium Asia (MAQ0635AU) Report & Performance

In July, the Fund and the MSCI AC Asia ex Japan Index both performed 4.8% (in AUD). Year-to-date, the Fund recorded gains of 11.6%, while the index was up 10.0%. The positive contributors during the month were broad-based across geographies and sectors. Our holdings of Chinese equities were among the top contributors to the Fund’s performance. In particular, our holdings of internet names were boosted by the supportive policy stance from the central government toward private enterprises and platform companies. Outside of China, a leading Korean construction and project management company was also a top performer, supported by its strong first-half results. On the flip side, our holdings of two regional technology companies, one in Korea and another in Taiwan, dragged the Fund’s performance, as investors took profit following the sector’s strong performance in recent months. Nevertheless, we remain constructive about the sector and continue to be optimistic about our select holdings, which should benefit from the growing investments in artificial intelligence (AI).

In June, the Fund was flat at -0.2% (in AUD), in line with the MSCI AC Asia ex Japan Index’s – 0.1% (in AUD) performance. Year-to-date, the Fund was up 6.6%, outperforming the index’s 5.0% performance.

During the month, our exposure to various Chinese SOEs across different sectors dragged the Fund’s performance as expectations of SOE reforms weakened. In particular, our off-benchmark position in a telecommunications operator was the top detractor to the Fund’s performance. That said, we remain positive about the company’s growth prospects, supported by the continued adoption of 5G in the country. Our exposure to financials, including those in China and South Korea, also dragged the Fund’s performance. The optimism toward Korean financial stocks, in particular, is losing steam, given expectations of diminishing interest profit growth as the country’s rate hike cycle appears to have come to an end.

On the positive side, our exposure to a leading skincare brand in Korea was among the top contributors to the Fund’s performance, driven by its successful IPO. Our select internet holdings in China also performed well, as they are expected to maintain revenue growth ahead despite the short-term bumpiness of the economy. Our holdings of technology names in Taiwan also yielded positively, given the sustained optimism toward the electronic sector, while our exposure to India also supported the Fund’s performance as the country continued to be supported by favorable economic prospects.

In March, the Fund was up 4.6% (in AUD), while the MSCI AC Asia ex Japan Index returned 4.2% (in AUD).1 In the first quarter of the year, the Fund was up 10.5% (in AUD), almost 500 basis points above the MSCI AC Asia ex Japan Index (which was up 5.6% in AUD).1

During the month, our exposure to regional technology names was among the top contributors to the Fund’s performance, as they were boosted by expectations of an improved sector outlook by the second half of the year. Our exposure to Chinese telecommunications was also boosted by expectations of further SOE reforms and the rapid development of industrial digitalization. Moreover, some Chinese internet names yielded positively on the back of the country’s macro recovery and the supportive policy stance toward private enterprises.

On the other hand, our exposure to certain financial companies dragged, given the weakened sentiment caused by the SVB and Credit Suisse incidents. However, we believe the impact of the recent events on the banking sector in Asia is rather limited. Other key detractors include a major e-commerce player in China, which reported weaker-than-expected results. Meanwhile, some A-share companies have seen their share prices ease, dragging the portfolio’s return.

Asia equities dragged in February amid the stronger US dollar and renewed fears that the US might tighten more than expected. In February, the Fund and the MSCI AC Asia ex Japan Index performed -1.4% (in AUD) and -2.6% (in AUD), respectively. Our exposure to Chinese e-commerce and consumer names and a regional technology company were among the key draggers of the Fund’s performance during the month. We believe their share price corrections merely reflected the changed investor sentiment and were not driven by any significant fundamental deterioration.

On the other hand, some of our portfolio holdings yielded positively despite the market correction. They include our exposure to Chinese telecommunications names and a Taiwanese company providing testing and certification services. In particular, the Chinese telecom operators were boosted by expectations of further SOE reforms to bolster their shareholders’ returns and faster adoption of cloud infrastructure services.

In December, the Fund and the MSCI Asia ex Japan Index performed -0.4% (in AUD) and -1.4% (in AUD), respectively.

Our portfolio holdings in Hong Kong and China have continued to do well. The top performers coming from these markets during the month include various names from the internet, consumer, and finance sectors. They are expected to benefit from the improved market and macro conditions.

However, the solid share price performances of these Chinese companies were offset by a less stunning performance elsewhere, notably in Taiwan and Korea. In particular, some of our technology holdings in these markets have declined amid rising concerns over the global consumer electronic downturn. Despite the near-term challenges, we continue to see solid long-term business competitiveness on the back of their strong strategic positioning, sound business profiles, and solid balance sheets. Moreover, as they are trading at trough or close-to-trough valuations, we see limited further downside in these companies and remain faithful that they are well-positioned toward long-term technology business growth.

Looking forward, we see a rather mixed outlook in Asia in 2023. While the China market is poised to see a strong recovery, the looming recession in the US and further rate hikes from the FED may create further volatility in the stock market. In particular, some better-performing markets in Asia last year could come under pressure this year, while others may selectively benefit from China’s reopening.

Overall, we continue to see a bumpy recovery in the Asian markets ahead, but we remain optimistic about China’s long-term market outlook. We stick with our bottom-up stock selection approach and, at the same time, pay close attention to macro developments, including export trends, currency movements, and geopolitical events.

In November, the Fund and the MSCI AC Asia ex-Japan Index were up 13.3% (in AUD) and 13.4% (in AUD),1 respectively.

The key contributors to our portfolio were relatively widespread across different sectors, especially in China, which include internet, consumer, and financial names. These primarily reflected the renewed investor enthusiasm amid the fine-tuning of anti-Covid policies in China, as well as the strong funding support for property developers. A leading regional semiconductor foundry was also among the top contributors to the Fund’s performance.

On the other hand, our Fund’s exposures in India and Indonesia have slightly dragged the Fund’s performance, given the modest performance in these markets.

Following a sharp rally in November 2022, we expect market volatility to persist in the near term, as investor sentiment remains jumpy on different macro data points and economic events. For China, one key event to watch in the near term is the central economic working conference that will likely take place in the next few weeks, as it could outline top policy directions. Overall, we remain optimistic about China’s long-term market outlook and believe it offers good long-term risk-reward opportunities, even after the recent rebound.

In the other parts of Asia, we continue to adopt a selective approach toward different trends and characteristics. Although other regional markets have significantly underperformed China in the recent month, we believe that selective allocation in some markets could help shape a more balanced portfolio with reduced volatility over the longer term.