Quarterly Commentaries

Far East Equity Strategy 3Q 2017

10.19.2017

Key Takeaways

 
  • In the third quarter of 2017, our Far East Equity Strategy delivered positive returns, but underperformed the strong performance of the MSCI All Country Asia Pacific ex Japan Index – consistent with our high quality style.
  • Asian markets continued their strong run this year into the third quarter as growth expectations remained positive. China was a top contributor to benchmark performance over the quarter. China’s economy continued to expand with second quarter GDP growth at an annual rate of 6.9%, exceeding the government target, driven by improvements in industrial production, domestic consumption and strength in the property market.
  • Our Far East Equity Strategy’s absolute returns were driven primarily by our Information Technology and Indian Financials holdings. However, in market relative terms, not surprisingly Consumer Staples underperformed the strong market, and our relative performance was also pulled back due to our holdings in the Financials and Consumer Discretionary sectors.
  • Valuations continue to look stretched, which makes finding new opportunities a bit more challenging. Although the rising markets have been fueled by expectations that corporate earnings are set to rebound, all is not necessarily copacetic. We see China as the biggest risk, but also the biggest opportunity. Despite issues with the state sector, China’s household sector looks to be in fairly good shape.
  • In India, concerns remain about slowing GDP growth following the introduction of the Goods and Services Tax. We have been gradually reducing our Indian exposure over the past couple of years as valuations have stretched towards the high end of their historic range for a number of companies; however, it remains our single largest country exposure along with China/HK.
  • Across Southeast Asia, things look relatively stable. We feel there are still opportunities in this bifurcated market. And as human behavior continues to be myopic, we believe there will always be opportunities by being patient.

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