NESTOR Fernost - Quartalsbericht 04/2011 (engl.)

Auch das ferne Asien kämpfte mit Marktverwerfungen. Aber es gibt "Licht am Ende des Tunnels"!

München/Luxemburg, 31. Dezember  2011 –  unsere Starmanagerin, Anna Ho, berichtet vom schwierigen, asiatischen Jahresende - ist aber zuversichtlich für die weitere Entwicklung in China, Indien und Australien.

Review of markets

2011 had been a difficult year for equities, and especially for China equities. Up until July, the market was very steady with mild concern over inflation and over property bubbles in China. The Asia market (MSCI Asia ex-Japan) started to weaken in August when Greece debt problem surfaced and triggered a global panic over the possible dis-integration of Europe. Asia ended the year with a decline of 15.4% in EUR, and the EUR declined 3.2% versus the USD. Within Asia, China and India were the weakest markets, down 20% and 36% respectively. Investment outflows from these markets were alarming as investors turned risk adverse with global liquidity threat triggered by European debt crisis.

Review of fund performance

The fund underperformed its benchmark quite significantly not only because it focused heavily on the weakest markets, China and India, it was also heavily exposed to the smaller cap companies in these markets. Small caps were vulnerable to the sudden disappearing of risk appetite from global investors. This compounded with the unfortunate events of nuclear leakage in Japan and train crash in China, our holdings with exposure to nuclear power equipment and railway infrastructure collapsed. The panic selling on US listed Chinese companies triggered by continued reports on fraudulent accounting by Muddy Water, also damaged our performance, since we have over 10% holding in the US listed Chinese companies. Our India investment had outperformed the India market as a whole, however, India was a disastrous market in 2011 and our relative overweight there contributed to our underperformance.

Outlook

Although there is little chance that the European issues could be resolved in the near future, its ability to shock the market will not be as strong as in August 2011. We are seeing some positive signals from China since October, and it was evident by the reserve requirement ratio (RRR) cut in December. Bank lending has also increased in the last quarter of 2011, together with the subsiding CPI (consumer price index) figures, we believe China will continue to loosen the monetary policy, and this is positive to businesses as well as to the stock market. With China’s fixed asset investment bottoming out, we expect Australia’s market to perform better as well into the 2H of 2012. India market may remain in the doldrums for a little longer because it is extremely vulnerable to foreign capital flow, and that may remain weak given the weak global economies.

Fund Strategy

The fund will remain fully invested with less than 10% of cash holding, as it has been the investment style adopted for the past 10 years. The fund will continue with its current allocation to A-shares, US listed Chinese Stocks, and to China as a whole. I have cut down India exposure since October, and will continue with a lower exposure to that market. In terms of themes, consumers will remain be the focus, and this include the opportunities offered by the rising trend of smartphones, and other mobile devices. The potential decline of China exports and the slowing investment demand in China has affected some industries and therefore we have to lower our exposure to the industry consolidation theme.