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Asian Markets were mixed in December, with the Thai SET Index finishing on a strong note +1.8% (FY +20.5%),  and FTSE ASEAN +1.0% (FY +3.5%), but the Hang Seng Index -3.5% (FY +0.4%), Hang Seng China Enterprises Index -4.5% (FY -2.8%), and MSCI Asia ex Japan Index -2.3% (FY +2.9%). Meanwhile, Knight Mekong Fund +6.5% (FY +10.1%), mainly attributable to a jump in oil & resources shares, and Mekong plays.

As we enter the New Year, markets worldwide are not bargains, especially facing the spectre of higher interest rates. However, we have identified a number of initial themes, which we expect will provide solid performance opportunities in the year to come. It is worth noting that Myanmar ranks #1 in the economist’s GDP growth forecasts, at +9.5%, with Laos, Cambodia & Vietnam also ranking in the top ten fastest growing economies for 2017:

  • The Donald Trump Factor:
  1. Renegotiation of terms of trade, especially vis-à-vis US-China trade; Losers may be Hong Kong property & trading companies, although we are long Li & Fung, which is already overly depressed. Likely winners are emerging manufacturing bases in ASEAN, such as Vietnam & Cambodia: we are long Amata Vietnam, and Phnom Penh SEZ.
  2. US Infrastructure program: Trump is likely to announce an enormous [$5 trillion] rebuilding plan, including railways, airports & roads. Outside the US, base metal producers such as BHP, Rio Tinto & Turquoise Hill will benefit. As well as Chinese railway builders such as China Communications Construction, which will likely play a key role in the public private partnerships in the US, both due to the US need for capital and skills, but also as a quid-pro-quo for the trade reset.
  3. US Energy independence: Trump will look to collaborate with the Russians and Saudis to get the oil price up to help US shale oil producers. We remain long Santos & Petrochina, and PTT & PTTEP in Thailand.
  • ASEAN infrastructure, supported by the Chinese & Japanese, particularly in the Philippines, Thailand and the Mekong. We are holding Ch Karnchang, China Comm Construction, DMCI & San Miguel in the Philippines, and Max Cement & Gold Cement in Myanmar.
  • Regional tourism: The tide of Chinese visitors will keep rising, with Thailand, Vietnam & Myanmar the clear beneficiaries. We hold Thai & Bangkok Airways, Erawan Hotels, Bangkok Dusit hospitals.
  • Consumption growth in medium wealth markets: China, Philippines, Vietnam, Cambodia & Myanmar. We hold Singapore Myanmar Investments, GOME in Hong Kong, and BRM Agro in Cambodia.
  • Digital Consumption Growth in more developed markets: Singapore Telecom, Advance Info, China Mobile.
  • Arbitrage Property Markets between Hong Kong/Singapore and ASEAN: With slower outflows from China, HK is likely to slip, whilst grass roots demand will continue to drive growth in Thailand, Philippines, Indonesia & Vietnam. We are short Henderson Land & SHK Props, long Sansiri, Ananda, & Mah Boon Krong.
  • Clean Energy: China pollution scares and rising oil prices will support non fossil fuel power, including nuclear & solar. We hold SPCG in Thailand and Paladin (uranium) in Australia.
  • Fear of demonetisation, will continue to spur gold demand. We have added to Newcrest, Zijin, Medusa & TRQ.

Amongst strategic investments, our key target is complete the Singapore IPO for Max Myanmar cement in the first half of this year. The company is already exceeding its production targets. Meanwhile, BRM Agro in Cambodia, is enjoying a major uplift in agricultural land prices, spurred on by Chinese buying.

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