World and Asian Markets recovered strongly in June as trade tensions eased: the Hang Seng Index gained +6.1% (-1.4% 12 Months), the MSCI Asia ex Japan Index +9.9% (-2.9% 12M), the MSCI AC ASEAN Index 6.8% (+8.4% 12M), and Thai SET Index +9.9% (+16.8% 12M), Knight Mekong Fund +0.1% (+9.2% 12M).
The temporary truce between US / China announced after the G20 meeting of Presidents Xi & Trump, gave markets a substantial boost, recovering most or all of May’s losses. Trump can sit back and wait for China to propose solutions, enjoying his (perceived) tariff windfall in the meantime. He is now likely to turn his attention to Europe, including strong-arming the EU into a favourable deal with the UK over BREXIT. With Boris Johnston (who was technically also a US citizen by birth, until he gave it up in 2017 after being forced to pay US taxes in 2015) as the new British PM, Trump will have an ally: Boris’ objective would be for a better exit deal, Trump mainly aiming to weaken Europe. Meanwhile, heightened of tensions in the Gulf of Arabia, the Gold price has finally broken the US$ 1370 barrier and entered a new bullish phase.
All the Mekong countries are following the Thai model: Agribusiness->Tourism->Manufacturing->Consumption, with domestic ethnically Chinese business people as the business drivers. Historically, Japanese, Korean & Taiwanese have been the main sources of FDI, now the mainland Chinese are taking up the slack. At the government level, the Mekong countries can now choose between Japanese/Korean and Mainland Chinese infrastructure investment/finance. The beauty of the Mekong economic pipeline is that since Thailand, Vietnam, Cambodia, Myanmar & Laos are all at different stages of development, so this growth trend can be sustained for 10-20 years.
Meanwhile, the Thai stockmarket rallied as returning PM Prayut finally formed his coalition Cabinet. Prayut’s ruling coalition has a paper thin majority in Parliament, and we expect this government to move fast to implement the plethora of coalition partners initiatives, and be more pro-business and dynamic than the previous government. We are already seeing increased activity in the transportation infrastructure sector.
Amongst our funds, Knight Mekong Fund offers a combination of Thai/Mekong value plays, deep value Myanmar/Cambodia/Laos stocks, and the blue sky of the upcoming listings of BRM Agro, Gold Cement & Max Cement.
The three strategic investments in our portfolios are expected to be publicly listed in the next 2 years: BRM Agro on the Canadian Stock Exchange followed by a Thai secondary/DR listing; Gold Cement through a UK or Thai RTO listing, Max on the Singapore 2nd board. BRM’s CSE listing will be at a 40% premium to current valuation, impacting ACF & KMF, and Gold Cement’s at over 100% premium, impacting the KMF.
Gold Cement is imminently increasing its stake in the Sinminn cement plant from being a 49% JV to be a wholly owned 45 year lease, this will lead to a major interim uplift in the KMF’s value.