Asian Markets saw profit-taking in March holding on to slim YTD gains, with the Hang Seng Index -2.4%, MSCI Asia ex Japan Index -1.6%, MSCI AC ASEAN -2.6%, Thai SET Index -2.1%, with the Mekong Fund +2.3%.
With the Fed drawing money out of the market, investors overweight equities and tech shares priced for perfection, the endemic “buy on dips” strategy may have become obsolete. We still expect the developed world markets to trade in a downward range, and emerging markets sideways, throughout this year. However, we expect worries about a full-fledged trade war breaking out to be unfounded. With China reigning in their “little brother” in North Korea, the quid pro-quo, maybe US going easy on trade, except for a few token gestures and generally constructive re-negotiations. The tech sector is likely to continue to deflate, under attack over privacy issues and anti-monopoly sentiment, and less than optimum earnings. Our short positions on Alibaba and Tencent helped us keep above water this month.
China’s muted reaction to the US trade threat, reflect a more sagacious approach to foreign policy (and perhaps a secret understanding vis-à-vis North Korea). China will accelerate efforts to reduce dependence on the US, particularly reflected in Asia-centric initiatives such as the “One Belt, One Road” infrastructure program.
The Thai Stock indices and the Thai currency held relatively firm, although the strength of energy shares disguised sharp falls in property, construction, and industrial shares, which now offer good value. Knight Mekong Fund increased its Thai equity exposure, reducing cash to about 15%.
In Cambodia, one of our portfolio holdings, Phnom Penh SEZ, has already announced plans to be the first Cambodian company to apply for secondary listing on the SET. Our investee company BRM Agro is also planning to list on the Thai MAI 2nd Board, and has already received positive feedback from regulators and investment banks.
In Myanmar, we are pushing ahead with the listing of Max Myanmar cement on Singapore’s 2nd “Catalyst” board; and Gold Cement based in Mandalay plans to list on the Thai main board, or carry out a gradual RTO, whichever proves to be quicker. Another portfolio holding, Mandalay Myotha Industrial Development is upgrading from being an Myanmar OTC public company to list on the Singapore 2nd Board.
In the resource sector, we remain overweight in gold mining and energy shares, as inflation fears, improving supply/demand, increasing portfolio investment, the impending Saudi-Aramco listing, and a weak US$ all remain positive drivers. We continue to hold PetroChina, Santos, Newcrest, Medusa Mining, Oceana, and Zijin Mining.