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Asian Markets rallied in May, with the Hang Seng Index +4.2%, MSCI Asia ex Japan Index +4.1%, FTSE ASEAN +1.8%, Thai SET Index +1.3%. The Mekong Fund gained +2.2% 

 The political stress in Washington, combined with renewed confidence in the EURO following Emmanuel Macron’s election as the new French President, has knocked the US$ off its peak. Asian currencies and commodity prices benefited from this reversal. However, US stockmarkets broke new highs, in contrast to weaker bond prices. It seems unlikely that Wall Street can escape a correction for much longer in the face of these headwinds, and we increased our short position on Alibaba, our Asian proxy for NASDAQ

Although commodity related shares failed to keep up with their underlying product prices, We are maintaining exposures to oil and gold shares, including Petrochina, Santos (also a takeover target), Zijin Mining & Newcrest, Kingsgate on hopes of a breakthrough in talks over their Thai gold mine suspension, and Turquoise Hill as an undervalued copper/gold resource and in anticipation of an eventual RIO takeover, as well as Orocombre as the prime lithium play.

The Thai market remained quiet as the transition government floated trial balloons as to the timing of the 2018 planned election, after a bomb attack on the military hospital on the anniversary of the 2014 Coup (and 1992 & 2010 crackdowns – always May 22nd). Thai politics has become less certain,  as the so called “old elite” begins to fracture. In the face of this, the three main parties Pheu Thai,  Democrat, and Bhumjaithai began revisiting the idea of a unity government, in order to ensure no unelected faction of the appointed Senate could hold sway. However, the most likely result will be a Democrat / Bhumjaithai coalition (as in 2008). A return to a nominally civilian government would likely result in more policy initiatives, which would help support the economic leadership of the private business sector.

Meanwhile, Bangkok continues to see firm property prices and healthy consumer spending, well in excess of the official lacklustre GDP growth rate. With the SET index up just +1.2% YTD in baht terms, it is the +5.4% YTD gain in the baht that has driven most of the foreign investor gains. Our “Bangkok hub” stocks firmed up, including Thai Airways, Erawan Hotels and Airport Authority, whilst we wait to accumulate more Bangkok Dusit Hospitals. Construction stocks traded sideways, despite new railway contact awards.

There was no shortage of other Asian governmental initiatives. In mid-May, Xi Jinping convened his One Belt, One Road Summit, with high level support from Russia, Pakistan, Turkey and Philippines. Xi spelled out a collaborative vision consisting of 5 planks: 1) Policy coordination; 2) Connectivity; 3) Free trade; 4) Financial Integration (incl AIIB at the core); and 5) Cultural Exchange (people to people bonding). 270 major deals were signed. The Summit was largely ignored by the Europeans & Japanese (who hope to keep TPP 11 alive), and boycotted by India (Modi focused on his “One Country, One Economy” initiative intended to breakdown state trade barriers) & Singapore (perceived to be the biggest loser from the whole scheme).

In the Mekong Region, we revisited analysis on the Phnom Penh Water & Phnom Penh Port, both of which are on low single digit PEs, and plan to accumulate more shares.

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