Quarterly Commentaries

Far East Equity Strategy 4Q 2017


Key Takeaways

  • Our Far East Equity Strategy outperformed the MSCI All Country Asia Pacific ex Japan Index in the fourth quarter of 2017.
  • Performance was strong across Asian markets in the fourth quarter, aided by solid economic growth. All sectors were positive with Financials and Information Technology contributing the most to benchmark returns. Structural reforms remain on track in China, India and Indonesia. China was the most significant contributor to benchmark returns, followed by South Korea and Australia. However, Pakistan was weak on political instability and overbought ahead of MSCI upgrading the country’s status from Frontier to Emerging Market in June.
  • Our holdings in the Consumer Staples and Information Technology sectors were the biggest contributors to both absolute and benchmark relative returns. An overweight to Staples also added to fourth quarter attribution after lagging the market earlier in the year. Our Information Technology performance was driven by Chinese e-commerce companies. Due to the strong performance of the strategy, there was only one detractor country or sector with more than -0.5% impact on overall returns, and that was Pakistan where our two holdings fell along with the market providing a 64bp headwind.
  • All signs point to stronger growth in 2018. Commodity prices have been improving, unemployment is coming down with solid wage growth across most of the major economies in Asia. Yet nothing has been so significant as to raise concerns about overheating. We continue to be vigilant about earnings multiples and continue to sell down positions as they reach our target price. As always, country and sector weights are an outcome of where we believe we are finding good businesses and not driven by a top down view of the world.

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