A Prosperous Year of the Pig!

History is a useful Guide for Investors, especially when the crowd is issuing warnings of doom and collapse. Throughout my 37 years in Asia, we have had periodic panics and stock market collapses, such as 1987, 1998, 2000, and the financial crisis of 2008/9, since which we have enjoyed a 10-year bull market.

Political crises, such as 1983/4 Hong Kong, 1989 Tiananmen Square, 9/11, and the Iraq War 2003, have also deeply impacted markets. One lesson we have learned is that life gradually returns to normal, daily business goes on, and it is well worth being a long-term contrarian investor.

My long-term faith in Asia, and in her hard working people, has never faltered.

Through my work with the Lloyd George Asia Foundation, I have also witnessed the thirst for education and self-improvement in some of the poorest neighborhoods of Calcutta, Manila, Bangkok, and the remote Karen Hilltribes Trust of Northern Thailand, which I recently visited. The first thing these children need is a reliable water supply – then dormitories; but the strong desire for literacy, for knowledge, for learning languages, and skills such as nursing and engineering is present everywhere.

In our investment strategy, we have increasingly focused on finding driven and committed entrepreneurs and founders of new businesses, whose energy and vision benefits all their shareholders. I have had the great good fortune of meeting Li Ka Shing of Cheung Kong, Robert Kwok of Shangri-La, TK Wen of Selangor Properties, Narayana Murthy of Infosys in Bangalore, among many others.  More recently we have visited young entrepreneurs in Vietnam, and other new frontier markets.  The ethical principles, and high standards of corporate governance, which have governed large companies such as Tencent since its founding, have led to them being ‘multi-baggers’ for investors over the last 20 years.

China today, as the world’s second largest economy, represents 15.2% of global output, but is only 3.2% of the MSCI All World Index of markets. The same figures for INDIA are 3% of the global economy and 1% of MSCI.

More importantly, by 2030, it is likely that China and India in 2040 may become the world’s two largest economies as their vast populations rapidly increase their incomes and standards of living. Surely for investors, it is appropriate to look forward rather than backwards.  Although, if we look back to 1800, India and China (in that order) were the two richest nations.  The wheel of history turns around, slowly but inexorably.

There is a parallel between Japan 1960-1990, and China 1990-2020. The earlier two decades, in each case, were periods of rapid economic growth, but poor stock market performance that were succeeded by the last decade of slower economic growth, and a stronger share market, as the accumulated capital from industry and exports was redirected into property and shares.  China is a special case, being a centrally directed economy, and the Shanghai market is a ‘policy-driven’ market.  In 2019 we see the opening up of China’s financial sector and inclusion of more A Shares in MSCI indices, which will lead to government support measures for the market.

In India, we definitely see scope for an interest rate cut of at least 50 basis points in February, given that inflation has fallen to almost 2%, and the RBI rate is 6.5%. Much will depend on the evolution of the oil price (we expect US$60 a barrel) and the Rupee holding steady at 70/71 to the Dollar.

This week’s Indian budget has been focused, for political reasons, on support for farmers and the rural poor, with talk of a Universal Basic Income. Further stimulus can be expected before the May election, which should favour automobiles, property, and other rate sensitive sectors (private sector banks/mortgage lending). Bank credit growth has accelerated to nearly 15%, though industrial production has slowed.  In India, as elsewhere in Asia, the real story is the consumer.

It is also noticeable that domestic Indian institutions have increased capital flows into the Bombay market while foreign portfolio investors are cautious. The ‘Nifty 50’ is on 16x PE (below its historic average) with earnings expected to 18% to 20% in the next year.  Though small caps have underperformed in the past 12 months, we anticipate a recovery after the general election.  Long term, India remains our favourite destination to allocate patient capital.

There are many unforeseen consequences to the Trade War (also true for Brexit). One is the geography of technology assembly plants.  Apple has intensified a search for ways to diversify its supply chain, and that hunt has now honed in on India and Vietnam.  To quote one manufacturer:  “American workers won’t work around the clock.  China is not just cheap, it’s a place where, because it’s an authoritarian government, you can marshal 100,000 people to work all night for you (at US$2 an hour).”

This year has elections in India, Indonesia, the EU, and several other key countries. In addition, the coronation of the New King of Thailand on May 4th closely follows a return to “democracy” there in March 24 elections.  On April 1st, the new Emperor of Japan will designate a name for the “Gengo,” or New Era, symbolizing his reign.  Japan will host the 2020 Olympics and become more open to immigration and foreign investment and influence.  The yen could be one of the stronger currencies of 2019/2020.



Robert Lloyd George
8 February 2019
Hong Kong

Predictions for 2019

As 2019 opens, we see cause for optimism with the following trends or events relevant to the Asia Pacific markets.

  1. The US dollar peaks out and the increase in interest rates by the Federal Reserve will be slowed down.
  2. The oil price stays near to US$50 a barrel and this is a huge tax cut and economic boost, especially to the Asian importers.
  3. There is a comprehensive trade deal between the US and China by March or, perhaps by extension, in the summer.  This will comprise a significant increase in China’s purchases of US products, including energy and food; an enhanced agreement to open up China’s markets, especially the financial sector, the auto sector, and other major industrial product sectors; a respect for intellectual property, which can be monitored; and an agreement not to impose new tariffs on each side.
  4. This will lead to a strong rally in the most depressed stock market in the world, the China Benchmark CSI 300 Index, which finished the year 2018 down 25%, being the worst performing market last year.  We expect it to be among the best performing in 2019.
  5. We expect that the Indian election in May 2019 will result in a successful re-election of Mr Narendra Modi and the BJP, which will boost the performance of the Bombay stock market in the coming 2 years.

Most observers agree that Emerging Markets are now undervalued. It is interesting to analyse the growing weight and influence of China on the Emerging Markets universe.

Therefore what happens in China’s economy is increasingly important to the whole world. We expect that China’s growth rate will settle down to about 4% by 2020 and that debt levels managed by the PBoC.  The Renminbi, however, would devalue by 10 to 15%.

The Chinese government has reversed policy, from one of deleveraging to stimulation. The PBoC cut the RRR another 100 basis points at the beginning of the year. Fixed-asset investment has been picking up for 3 straight months from a bottom in August 2018, and the government has announced that investment in railways will jump by 40% in 2019.

If previous rounds of stimulus relied largely on investment, this time Beijing is looking to the consumer, by introducing the first personal income tax deductions for key spending areas like healthcare, education and housing beginning this year, which is expected to contribute up to 1% GDP growth.

It is clear that the government is more concerned about the state of the economy and is under more pressure to stabilize the situation at hand. Combined with the possibility of a trade deal, we think the point of maximum bearishness could be behind us.

The New Year opens with brighter prospects of US-China trade tensions easing, and if the 90 day period is extended, some accord will be reached before summer. Meanwhile China is determined both to support its economy, currency and technology sector, and also to provide its 1.4 billion consumers with more choices.  We see strong growth in tourism, in cosmetics, in food and beverage sales, in sportswear and even in mutual fund sales.

The opening of China’s savings and investment sector is undoubtedly one of the biggest opportunities of the next decade. China has a savings rate of almost 50% of national income, which is equivalent to US$5.4 trillion in 2017.

Last month we made a research visit to the Philippines, with 105 million population of whom over 11% work overseas, is a medium sized Asian economy of over US$330 billion GDP (about US$3,100 per capita). The growing middle class economy is reflected in the success of companies such as Jollibee, which is the only competitor to McDonald’s, worldwide, which has won over 50% market share in its home market.  Another significant trend which we observe all around South East Asia is the growing importance of China, as a source of investment, trade and tourism (Chinese tourist numbers are growing 40% p.a. in the Philippines), which will impact infrastructure and telecoms particularly.  Foreign Direct Investment flows have reached 3.2% of GDP, second only to Vietnam in the emerging ASEAN markets.

Tourism in Asia

Our focus in South East Asia remains on the consumer sector, where we see the strongest companies with sustainable growth – Ace Hardware in Indonesia, D&L Industries in Philippines. Infrastructure is covered by Hoa Phat in Vietnam, Siam Cement in Thailand, and Ayala Corp in Philippines.  On balance, this year we see ASEAN as an outperformer.

India will benefit from an easing monetary policy (with inflation at 3% and rates at nearly 8%, India has the highest real borrowing costs in the world) in the approach to the May general election. The clean-up of the banking sector continues under the new governor, Mr. Shaktikanta Das and is expected to add more liquidity into the system. India is expected to remain fastest growing economy and corporate India’s profit is estimated to grow at 18% CAGR over the next two years.

2019 Forecasts for Asia

Source: LGM estimates

The fall in the oil price also benefits nearly all Asian economies especially China, Japan, India and Indonesia. Economic growth is expected to accelerate in India, Indonesia and Philippines.

There are still uncertainties and ‘unknowns’ in the 2019 market prospects, especially as they relate to the unpredictable nature of politics, and of US leadership in the world, a certain ‘vacuum’ of power has developed in both the Middle East, as well as Asia, which opens the door to dangerous players such as Iran.

On the other hand, North Korea appears much less threating than it did a year ago. China’s role in Asia has strengthened despite the apparent concessions it is making to the U.S. in Trade.  President Xi Jinping’s recent speech highlighted his intransigence, when it comes to national priorities such as Taiwan.  Nonetheless, we do not see China’s economic momentum being seriously constrained in the next few years.  There are still great opportunities in the world’s 2nd largest economy which is driven 80% by its domestic consumers.



Robert Lloyd George
10 January 2019
Hong Kong

China and Australia

The first week of December has seen a spike in volatility, after the Huawei news, nervousness about Brexit, and uncertainty on Fed actions. Headline news can be misleading – the true story is one of progress and reconciliation between the US and China, (and possibly between the UK and the EU, if a second referendum is called).  We remain positive on the Asian markets in 2019.

November saw a notable recovery in Asian markets, especially in India where we achieved an 8.5% gain (in US Dollars), and in our Bamboo Fund up 5.5% or twice the Asia Pacific benchmark. Much of this recovery has been due to a fall in the US dollar, and recovery of Asian currencies, and also the news coming last weekend of a ‘truce’ between President Trump and President Xi Jinping in the ‘Trade War’.  With the oil price also strengthening somewhat after the G-20 meeting, this will result in a much better tone in Emerging Markets in the next few months.  We expect that this rally will last well through Christmas and Chinese New Year and hope to see some resolution of the trade issue before the end of the three month period on February 28, 2019.

The reaction in China has certainly been positive and one consequence is that the government is easing its tight austerity measures, including deleveraging, in favor of a more stimulative program, as well as opening up the Chinese markets for imports by lowering tariffs on automobiles and other sectors, including the important financial sector where American banks and fund management companies can now have wholly owned subsidiaries. In November, growth in the services sector grew at its fastest pace in 5 months, and the PMI rose to 53.8, which confirms a policy shift.  We believe the impact will be favourable for the A-Share market, that the Renminbi will be held stable, (or not break the RMB7.00/US dollar line) and that business confidence, which has been quite depressed in China this year, will recover in the next few months.

Another major impact will be the acceleration of the trend of transfer of manufacturing to Vietnam, Indonesia, Thailand, Malaysia and the Indian sub-continent. We see already more Chinese and multinational companies moving production to these areas not only because of US pressure but also because of lower costs.

Our portfolio strategy is gradually to move the ASEAN weighting up towards a third of the portfolio.

I spent two weeks last month in Australia, a wonderful, welcoming country with abundant natural resources and beauty (especially in the Northwest, around Broome). With a GDP of US$1.4 trillion, and an average income of A$73,500 (US$53,057), Australia is a wealthy country with only 24 million people, which has not had a recession for 27 years.  One of Australia’s most remarkable achievements has been building up US$2.7 trillion of “Superannuation” or retirement funds, which is equal to almost twice GDP, or over US$100,000, each.  (As Alan Greenspan’s new book, Capitalism in America, highlights, the greatest US challenge of the next few years is tackling the entitlement problem and the US$22 trillion national debt.)

China is now easily Australia’s largest trading partner, accounting for about 32% of exports (almost half of which is iron ore) and 25% of imports. We are working on the assumption that China’s economy may slow to 6%, but its infrastructure demand (including One Belt One Road) will maintain growth and momentum, supporting commodity prices.  (Interestingly, the fastest growth in Australia’s exports of 33% has been to India.)  Also, Australia has recently become the No. 1 world producer of lithium.

In addition, there are now over 200,000 Chinese students in Australia, and 1.3 million Chinese tourists spending over US$10 billion annually. (They also buy 25% of Australia’s excellent wines.)  The property market in Sydney, and other major cities, has been supported by Chinese purchases, but house prices are now expected to correct, with median prices at 7 times average disposable incomes.  Our investment focus in Australia has been mainly on resources (including gold mining), but also on the healthcare and services sector, also closely connected to China.

Thinking about China’s path over the next 3 years, it is worth keeping the long term perspective in mind. Since 1978, or 40 years since Deng Xiao Ping’s economic reforms began – life expectancy has been extended by 9 years, and average annual income has increased from 614 Yuan to 67,569 Yuan or about US$10,000, a nominal increase of 100 times, while the US average has grown 5 times.  The proportion of the Chinese population living in cities has grown from 18% to nearly 60%, or 840 million.

The Communist party’s legitimacy since 1989 has rested on its ability to deliver economic growth and better living standards, not Marxist ideology. The question today is whether this can be maintained, under increased pressure from the USA and under a lifetime presidency with no constitutional procedures for the succession.

On balance, we give the benefit of the doubt to Chinese economic planners, who have managed successfully a transition from a state directed economy to one today whose growth is driven nearly 80% by consumer spending. Our investment strategy remains focused on healthcare, education, travel and tourism, and e-commerce.

Robert Lloyd George
7 December 2018
Hong Kong

The Turn of the Tide

Our confident expectation is that President Donald Trump will reach a “truce” in the trade war when he meets President Xi Jinping in Buenos Aires on November 30. The elements of such an agreement are already in the works and China is very willing to make a deal which will appear favourable to the US electorate. In particular, they will increase their imports from the US substantially by boosting purchases of food stuffs, energy and capital goods (one of the most interesting areas may be LNG, which will meet China’s requirements for a cleaner environment).  Deng Pufang reminded the Beijing leadership in a recent speech that his father, Deng Xiaoping had established China’s foreign policy in the 1980s as “hide your edge and nurture your strength” meaning that China needs to behave humbly and not try to take the lead in world’s affairs.

The recent rapprochement between China and Japan during Prime Minister Abe’s visit to Beijing last week, is very interesting in this light, since six years ago the two countries came near to conflict over the Senkaku/Diaoyu islands. China is re-assessing its aggressive policy in both trade and territorial claims, again the indications are positive that they will be more accommodating with their foreign partners in the next few years.

Our view as outlined in last month’s investment outlook is that China’s Shanghai A-Share market is now extremely oversold and deserve long term investors’ attention, the PE ratio is 10.7x forward and the market is now cheaper than it was after the 2008 financial crisis. There has been a shift from the consumer and technology shares which led the market until recently into the defensive areas such as banks, utilities and telecoms.  We expect the recovery will encompass all these areas as well as the tech heavy ADRs such as Alibaba, TAL Education, Hauzhu and Tencent.  The e-commerce giants in China still represent the best long term businesses for us to purchase.  We are mindful of Warren Buffett’s advice to buy when others are fearful and to stay conscious of our neurotic partner “Mr Market” who offers prices way lower than value.  We are also trying to follow Keynes’ investment advice when he said that the right method of investment is to put large sums into enterprises which we know something about, and in management in which we believe, and not to spread our risk too widely in enterprises which we know little about.

Regarding China’s economic slowdown, we perceive the shift away from exports and infrastructure (or fixed asset) investment as a healthy change, bringing new opportunities in consumption, tourism, education, and healthcare. Next week, Xi Jinping is opening the “Shanghai Import Show”, which again highlights China’s propensity to consume foreign brands (in fact China ran a current account deficit in 2Q18 for the first time, and it is expected to grow, as China’s tourism expands).

For the first time, the Beijing government announced a series of income tax deductions for mortgage payments, rent, education and medical expenses. We expect that these will be further policy announcements to encourage consumers to spend, and some stimulus measures (expected to add 1% to GDP growth), and jobs, and counter the effects of the trade slowdown.

Our focus this month is very much on South East Asia and the opportunities which it now offers us as many multinationals and Chinese businesses shift production into Thailand, Malaysia, Vietnam, Indonesia and India.

Vietnam’s manufacturing and labour costs are about 31% of China’s and it is perhaps the economy which we see growing faster, with a foreign investor friendly government and a stable currency. For long term investors it is also noticeable that some of the South East Asian currencies, notably the Singapore dollar, have shown steady long term appreciation.

Singaporean dollar vs US dollar over 20 year

Finally, on India where there has also been panic selling in the last month after the default of IL&FS and the rise of interest rates from 6.0 to 6.5% together with a concerted attack on certain financial institutions such as Yes Bank. We believe that there are attractive opportunities to buy long term plays on the growth of the Indian middle class, in particular the growth in the housing market.

The Indian market and Rupee have been oversold, foreign investors sold almost US$4 billion out of Indian shares in October, as usual being matched by domestic investors and institutions. Major Indian corporates reported 25% year on year growth in revenues, but EBITDA only grew 15%: the weak rupee, and rising energy and commodity costs, have pressured margins.

Liquidity remains a key consideration in our portfolio strategy: the experience of the last 2 years in frontier markets like Sri Lanka, and Indian small and midcaps, have deferred the manager from making new commitments in these areas. While we want to own the 25 best long term enterprises in Asia, we prefer to invest in liquid, tradable shares.

We are very much long term investors. Although we cannot with absolute confidence forecast market turns, we believe that for long term value investors, this is an excellent opportunity to consider a broadly diversified portfolio in China, India and South East Asia.


Robert Lloyd George
2 November 2018
Hong Kong


Asia: An Extraordinary Buying Opportunity

We have rarely seen such a bearish mood in Hong Kong and China. Asia Pacific is nearing 5-year lows in terms of price earnings.  In particular, China is close to its lowest multiples in 5 years; but its economic prospects (despite the comments of Larry Kudlow) are still good.  We expect China’s GDP to grow 6% in the next year – and this means an additional US$840 billion of output on a US$14 trillion economy.

5 Year MSCI Asia Pacific Price/Earnings Ratio

5 Year Shanghai Composite EPS and P/E

The emerging markets are also at a very depressed and oversold level and have fallen 20% in 2018. Within the emerging markets, Asia now represents 75% with EMEA at 15% and LATAM at 10%.

Emerging Markets in 1988 vs 2017

When we consider that the Turkish lira and the Argentine peso have collapsed by -38% and -52% year-to-date, together with their respective stock markets, we can appreciate the contagion effect that this has on otherwise healthy economies in Asia.

Asian Currencies vs LATAM Currencies 1 Year Performance

Russia, too, has been suffering from US sanctions, and the Russian ruble and the Russian market have both reached new lows with negative effects on other Eastern European economies. Brazil has been dragged down by political uncertainty and the effects of the Venezuelan economic implosion have affected Colombia and its other immediate neighbors.

Asia stands out for political stability, financial strength, strong savings rates, and good growth prospects. India is growing at 8.2% on its last quarterly GDP numbers.  The inflation rate is low at 3.7%, and real interest rates are high.  The current account deficit, that India is currently experiencing, is half what it was 5 years ago, when it was 5%; and today, it is 2.4%, even with oil rising to US$80, and we expect US$100 by year end.

Mr. Modi is likely to get re-elected in May, 2019; the Reform Program will be maintained; corporate earnings are growing at 20%; and the Reserve Bank of India is probably one of the most conservative banks in the emerging world. The Foreign Portfolio Investors (FPI) owned by non-resident India have now been given some relief from the SEBI rule regarding KYC of beneficial owner of the fund.  There has also been a concerted attack on corruption and bankruptcies in the corporate sector as well as the banking industry in India, which recently affected banking and financial stocks.   September has been a torrid month for our Indian Ocean Fund, which fell 9%, together with the weakness of the Rupee.  The Indian Rupee at 73 is now down by 14%, against the US dollar since the beginning of 2018.  In our view, none of these extreme market corrections are justified by the economic fundamentals.

The real political risk today, it could be argued, is in Washington where President Trump, having threatened trade wars successively with Europe, Mexico, Canada, South Korea, among others, has settled new “deals” with all of them. This argues that he will logically find a new “deal” with China in due course, which would have a dramatic effect on the depressed share markets of Shanghai, Shenzhen, Hong Kong, and the region.  The midterm elections on November 6 actually highlight the political risk facing the USA, since the possibility of the Democrats gaining the majority in the House, if not the Senate, will create paralysis and stagnation in the legislature, and possible impeachment proceedings against the president.   This will surely lead to a fall in the US dollar and probably in the S&P 500.

The key for us is the relative performance of the US market and the US dollar compared with the rest of the world, in particular, with the emerging market index.

10 Year Ratio of S&P 500 / MSCI Emerging Market Index

In the past 30 years, we have never seen such an extreme outperformance of the US compared to the rest of the world. The key will be a change in the Dollar’s trajectory.  As the US debt surpasses US$21 trillion, and interest rates rise towards 3% (and, as J.P. Morgan suggested, to 5% over the next 2 years), net interest payments annually will reach US$1 trillion, exceeding total defense or social security spending.  At this point, it is hard to imagine there will not be some sort of crunch, or crisis, in the value of the US dollar, and the way foreigners perceive the risk in the Treasury bond market.

It is interesting to compare China, with US$3 trillion official reserves and US$7 trillion or more of private savings, and other Asian countries – Hong Kong, Japan, Korea, Taiwan, India – because there is clearly an imbalance in the world. The global savings glut, which has held down interest rates for the past several years, may now be reaching a moment of truth.  Instead of 50% of Chinese savings being channeled into US funds, we may see soon a reversal by which the huge private savings in China and India are channeled instead into their own capital markets.

China’s contribution to global growth has risen from 12% in 2000 to 30% in 2017. China is also becoming creditor nation with external assets of US$6.2 trillion and is increasing its direct investment into Southeast Asia, both because of cost pressures and trade tariffs.

China is not only an investor but the leading trading partner of nearly all Southeast Asian countries, notably Indonesia, Philippines, Vietnam, the most populous ASEAN nations. In our model portfolio, we are now targeting 40% China, 30% India, and 30% ASEAN.  Within Southeast Asia, we are overweighting Vietnam and Indonesia because of their large, young consumer populations.  For instance, we have selected the Home Depot of Indonesia, Ace Hardware, as one of our core positions.

The health of the world economy depends on the Emerging Markets, which account for 59% of global gross domestic product – up from 37% in 1980. This enormous shift of the world’s economic balance in the past 30 years is principally due to China’s rise as a manufacturing and economic power, especially in the last 20 years.  Now, many observers think that India is the next China, with its young population of nearly 1.5 billion, exceeding China’s, its growth rate surpassing China’s, and its open and democratic system of government proving, in the long-term, more resilient.  No investor in North America or Europe can afford to ignore the potential of China and India as investment destinations in the next decade.  Even if the oil price reaches US$100 a barrel, we expect that, as in 2007, the Asian markets can rise against this background of rising commodity prices.  Inflation may be coming back as wages rise and labour shortages grow. But for the next 12 months, we see a coming shift of capital away from the overvalued US market into the value opportunity of Asia.




Robert Lloyd George
5 October 2018
Hong Kong

The New Silk Road

Does China mean to conquer the world? Many western observers, seeing the scale and ambition of China’s infrastructure plans in 86 countries and over US$1 trillion of projects, have concluded that it is a sinister plan to dominate Eurasia and beyond.  This essay attempts to look at these projects objectively and draw some conclusions about their impact on the world, and on China itself.  The following table shows the countries with the largest commitment by Chinese banks and construction companies.

“One Belt One Road”

Source: Hong Kong Trade Development Council

What may be observed from this list is the heavy concentration on South Asia and Southeast Asia (Pakistan, Bangladesh, Malaysia, Philippines, Indonesia, Vietnam, Laos, and Cambodia, also Sri Lanka); but, in addition, for Chinese geopolitical reasons, there is a strong focus on Central Asia (Kazakhstan, Uzbekistan) and even some of the old Soviet-zone states like Belarus and Romania. Equally important to the Chinese is their very strong commitment to Africa, which President Xi Jinping, the architect of the “One Belt One Road,” emphasized last week in the Sino-African Beijing Summit.  The total Chinese investment in Africa will amount to US$60 billion this year alone, and nearer US$200 billion in total.

As we have observed in the past, the Chinese influence on the smaller economies is extraordinarily powerful. The example of Sri Lanka, which I visited last year, is a telling one, where the total investment promised will exceed US$10 billion (Sri Lanka’s GDP is US$60 billion).  Already, Sri Lanka owes US$8 billion to Chinese banks and has agreed to a cancellation of about US$1 billion in debt in exchange for China getting a 99-year lease on the 11-square-kilometer special economic zone around the port of Hambantota.  As in Djibouti and, perhaps in Pakistan, China is essentially gaining ownership of key strategic locations, especially ports, around the Indian Ocean, which serve its long-term purpose of protecting its sea lanes, especially the route of oil tankers coming from the Persian Gulf through the Malacca Straits and into the South China Sea.

China has a two-fold objective to gain goodwill and long-term economic advantages in a strong financial and trading relationship with many emerging countries in Central Asia, as well as Africa and even Eastern Europe, which over the long term, will give it a powerful geopolitical presence and, perhaps, export markets for Chinese products to these countries. The difficulty is that many of the loans which accompany the projects to build railways, ports, pipelines, even highways and, very often, airports and presidential mansions, are usually impossible to repay because of the weak economic conditions, for example, in African nations.  China, thus, obtains a strong position as a dominant creditor even though, as we have seen in Sri Lanka, in Malaysia, and in Pakistan recently, a change of government brings to power a new administration which tries to either renege on, or renegotiate, these overwhelming Chinese loans.

Prime Minister Mahathir of Malaysia, who came back to power recently at the age of 92, has attempted to stop the construction of an east coast highway and also a vast Chinese offshore city of nearly 1 million “colonists” in Johor. Although all these emerging countries desperately want foreign investment, it does not always benefit them greatly to see the arrival of large Chinese projects, financed by Chinese banks and built almost entirely by Chinese engineers and workers, and then coming under Chinese ownership once they are completed.

There are many unanswered questions about this key strategy of the current Chinese president. Will military muscle be required to back up the trading and financial presence of Chinese workers and companies?  The example of Djibouti is interesting in that, for the first time, China has built a military base on the continent of Africa with a clear plan to emulate American, French, or British policies in the past where a special forces group can enforce action locally to protect Chinese citizens or projects (the recent case in the Sudan of 2,000 Chinese workers being evacuated) has perhaps stimulated this action.

As investors, we have to try to assess what all this means. Will Chinese banks suffer from non-performing loans from these emerging countries?  Is the return on investment of the Chinese engineering companies, notably railways, going to be adequate?  What if the Chinese economy itself slows down and these small emerging markets are heavily dependent on Chinese investment and trade?  It is clearly in China’s interest to export its overcapacity of steel and other key materials, as well as large teams of Chinese workers.

The world has never seen anything quite like this before. Some observers compare it to the Marshall Plan, which the US directed towards the impoverished nations of Europe in 1948; but the scale and the purpose are quite different.  The only real parallel is that just as a market for US goods was created by stimulating the European post-war economies, so too China will gain markets by pumping capital into Africa, Central Asia, and so on.  But the key question remaining is, “How will China get repaid?”  When Imran Khan was recently elected Prime Minister of Pakistan, he found an outstanding debt to China of US$60 billion and requested funds from the IMF to help repay the loans; but President Trump has put his foot down and refused to fund IMF repayments to China.  Could a similar situation cause a financial crisis or even currency volatility in the emerging markets?

We are convinced that China’s long-term strategy is a peaceful one; and just as they have focused with single-minded energy an on rebuilding their own economy after Mao, so their rhetoric suggests that they have every good intention to rebuild the struggling economies of the third world. Certainly, one motive is also to obtain a supply of key commodities, such as oil, gas and minerals, as well as food, from Africa.  If this massive Chinese global building project continues, we would expect that demand for, and prices of, key commodities will remain firm in the next few years, even though the infrastructure demands within China itself are lessening.  For instance, the investment in railways in Southeast Asia, and in countries like Bangladesh, will only further enhance Chinese competence in railway building.

The last month has been a tough time for investors in Asia; but within the next 4 weeks, we expect to see light at the end of the tunnel. First of all, the US and China will reach a deal on trade; and this will lead to a strong 4th quarter rally in oversold Asian markets and currencies, especially China.  The Shanghai A Share Market is now on a forward PE of 10 times, and foreign institutions continue to put in capital (the MSCI just increased exposure of A Shares in its Emerging Markets Index from 2.5 to 5% of all A Shares, and an estimated US$17 billion has been invested from overseas).

India, too, is resilient, with the local market rising 11% in rupee terms this year, while the dollar’s strength has largely eliminated this return to international investors. We expect that strong fundamentals – trade, current account, pro-business policies, continuity after May 2019 elections, and average corporate earnings of 25% – will prevail over time; and that the Indian rupee’s temporary weakness, caused by the contagion of Turkey and Argentina, will prove short-lived.   Our outlook for 2019 remains for robust growth in Asia, including ASEAN.

Another important development is the growing shift of manufacturers from China towards Vietnam, Bangladesh, Cambodia, and Indonesia, especially for clothing and textiles; and for office and telecom equipment to Malaysia, Singapore, and Vietnam. Exports and economic growth will pick up strongly, especially in low-wage nations like Vietnam and Cambodia.  This results both from China’s higher factory (labour) costs and from Trump’s tariffs, but it is worth emphasizing that China still accounts for over a third of global clothing and telecom exports.

Robert Lloyd George
7 September 2018
Hong Kong

Hangzhou Renaissance

During the Sung Dynasty (1127-1279) the capital of China was in Hangzhou (about 100 miles south west of today’s Shanghai). The famous West Lake remains one of China’s famous beauty spots.  Looking at the extraordinary variety and exuberance of the Sung ceramics, one can imagine the vitality and high level of Chinese civilization compared, for instance, to Anglo Saxon England in 1040 AD, when the capital was moved from Winchester to London.

Today’s Hangzhou is the headquarter to Alibaba, the world’s largest e-commerce business, of Geely Automobile, a leading Chinese domestic auto company, of Hangzhou Hikvision, a leader in surveillance and artificial intelligence, and many other technology leaders. Due to the rapid development of many new industries, Hangzhou was recently upgraded to a ‘Tier 1’ city in July of last year. The local property market is one of the most vibrant and high priced residential markets outside central Shenzhen, Beijing and Shanghai, with 9.5 million residents.  It gives the visitor a clear impression of today’s China – wealthy, confident, and assured with a pleasant clean lifestyle: Bentley, Ferrari, and Maserati all have prominent dealer show rooms: high-end restaurants are packed out for lunch and dinner.  Traffic is heavy but not choking as in the 2 major cities.

In fact, Hangzhou is in many ways comparable to Seattle (Washington), which is one of the fastest-growing cities in North America today owing to the presence of Amazon, as well as Microsoft, Boeing, Expedia, and so on. Amazon has 40 buildings downtown and over 50,000 IT employees.  Like Hangzhou, the city is being energized by the rapid growth and wealth creation of one major online company.

Everyone we spoke to in China was confident that the ‘Trade War’ will be resolved: even so, China can easily survive Trump’s threats and tariffs. Consumption is now 78% of GDP.  Exports are 18% of GDP, and exports to the US is 4% of GDP.  China’s ambitions to be a technology leader can hardly be suppressed.  As we have written before, they will innovate, and lead, in many areas, including medicine, biotech, AI, robotics, and so on.  It is not a threat to the west any more than Japan in 1980s, although the US demonises any economic competitor: in fact, global economic activity is thriving as the Asian giants engage, compete and improve efficiency.

In his fascinating book about Alibaba, Duncan Clark highlighted the strong nexus of small businesses which cluster in the province of Zhejiang in the city of Hangzhou. Alibaba has been able to leverage on this cluster of talent and products to the online e-commerce business which has really taken off in the 15 years since the outbreak of SARS in Hong Kong and China shut down a lot of physical shopping outlets.  Now the typical issue in America and Europe has become how far Amazon can be allowed to grow and destroy the old high street shopping outlets.  In China, it does not seems to be a big issue, but the question remains how far the ‘BATs’ (Baidu, Alibaba and Tencent) will be constrained by political authority just as the ‘FANGs’ (Facebook, Amazon, Netflix and Google) are now being constrained by new regulation, and some reaction in the case of Facebook, at their influence on the US electoral process (and Russian disinformation).

The Indian market has recovered in July, with the large cap index up 6% as the oil price corrected, and corporate results from Indian companies continue to be strong. In fact, in local currency, the Indian market has gained by nearly 8% since the end of last year, and is one of the best performing emerging markets.  The weakness of the Rupee has been the main drag on performance; but now that the Reserve Bank of India has hiked its policy rate by 25 basis points, we see the Rupee stabilizing.  Also we see major direct foreign investments in India by Samsung, Apple and, more recently, by J.P. Morgan.

The Indian market has also performed better in the last month, because it is not so badly affected by the trade tension between the US and China. In fact we have analysed the future situation of the assembly chains of technology and other products in Asia, and believe that South East Asia, India and its neighbours will benefit from a shift of manufacturing assembly work from China to India, Bangladesh, Vietnam, Thailand and perhaps Malaysia. Chinese capital is already moving into these areas.  We also notice that Samsung and Apple have both made major capital investments in Indian plants in the past several weeks.

Medium term, therefore, we believe that a balanced portfolio with China, India and ASEAN (Philippines, Malaysia, Singapore, Vietnam, Cambodia, Thailand and Indonesia) will be a very good portfolio to outperform in the next 10 years. It is interesting to observe that Pakistan has also elected its own home grown ‘Mr Modi’ in the shape of  Mr Imran Khan, the well-known cricketer and London socialite formerly married to Miss Jemima Goldsmith. He is likely to try and clean up corruption in Pakistan; and the Karachi market, and the Pakistan Rupee, have already rebounded by 4.7% in the first few days after the vote.  All of these countries in South Asia depend on China for capital investment and infrastructure improvement, so one of his first calls was on the Chinese Ambassador in Islamabad.

Our focus in our portfolios remain on the Asian consumer, now estimated to be 300 million in India and perhaps twice that figure in China (in ‘middle class’ consumers), and growing fast in Indonesia, the Philippines and other Asian countries; also on technology, e-commerce and other disruptive technologies and finally on the key sector in biotechnology and pharmaceuticals. The breakthroughs expected in oncology, by Chinese drug manufacturers, are extremely interesting and worth a diversified ‘punt’ on several promising new companies. The Hong Kong Stock Exchange has also relaxed its rules for new listings for biotech start-ups, and among the first names to list will be our favourite Chinese company, BeiGene.

Although we are now in the summer doldrums, we are looking forward to a strong and invigorating market bounce in the autumn, as the trade tariff war is resolved between Trump and NAFTA, and then Trump and China, as it has been between Trump and the EU. We are ready to buy into the A share market in China at a PE of 12 times, with earnings growth of over 20% in the pipeline, and local sentiment extremely depressed, even though the consumer spending and GDP numbers are coming in stronger than expected, at 6.7% for China, and over 4% for the US economy.  In conclusion, we do not believe that a trade war is imminent; and we are positive about prospects for China and the Oriental markets in the 4th quarter.

Robert Lloyd George
10 August 2018
Hong Kong

Summer Doldrums

The Asian markets are suffering from a strong US dollar and growing risk aversion (or a preference for cash). Nevertheless, the underlying fundamentals continue to be strong. The Indian market, for example, has seen a loss of nearly 7% year-to-date (large cap index moved up 1.7%, and mid cap index down 13.9%), mainly due to the weakness of the rupee, which has fallen 7% to 69 rupees per US dollar and matched lows of the past five years. Indian corporates however are estimated to report a 20% growth in earnings per share, and we continue to observe India’s “digital leap” supported by the growth of mobile phones, the Aadhaar identity card system, Jan Dhan, and the inclusion of over 300 million Indians into the financial system.

Source: Reserve Bank of India (RBI)

Together, these will transform India into the 3rd largest economy in the world, within 10 years, with a GDP of US$6 trillion, a market cap of US$6 trillion, and the 3rd largest banking system in the world with US$18 trillion of value (according to Morgan Stanley projections). Like China, the key will be the rapidly developing middle-class consumer sector, which is expected to quadruple from today’s US$500 billion to about US$2 trillion in market capitalisation; and per capita income growing from today’s US$1,500, to about US$4,000 by 2027, (or similar to China in 2010).

Our Indian advisor, Ashit Kothari, tells us that June has been a very difficult month for the small cap and midcap stocks, owing to changes in the domestic mutual funds and the general malaise of emerging markets in consequence of the trade war rhetoric between the USA and China, as well as the USA with the EU and Canada. Indian large cap stocks, however, have held up well; and pharmaceuticals are up 11%, and IT up 2%, both benefiting from the depreciation of the rupee.  The now established monthly pattern is for foreign portfolio investors to sell on average US$1 billion a month, while domestic institutions bought over US$2 billion.

Source: Ministry of Statistics and Programme Implementation (MOSPI)

This is a pattern we have observed throughout Asia with the growth of national and domestic wealth and savings becoming a much more important influence on the direction of stock markets than the volatile actions of foreign fund managers. We foresee that, in the 2nd half of the year, the US dollar strength will peter out, and that there will be a strong rally in these over-sold emerging markets.

Turning to China, we have also seen the Chinese Renminbi slip slightly against its trade-weighted average and about 3% against the US dollar in June. In response, the People’s Bank of China has cut the reserve requirement ratio for banks, freeing up over US$100 billion for new lending and investment.  This easing policy is distinctly different from the 2009 policy actions whereby the Chinese government greatly boosted fixed asset investment, or construction projects.  This year, fixed asset investment is growing at its slowest pace since 1995, as are retail sales.  Both of these factors have suffered from the tightening of credit in the system from the PBOC’s focus on deleveraging.  Corporate bond issuance has seen a sharp decline in the first five months of 2018 (down 37.5% compared to 2017 and 63% compared to 2016), while corporate bond defaults have increased at a faster rate than the previous two years.  Xi Jinping has directed that the “Growth At All Costs” policy, in place since Deng’s 1992 “To Get Rich Is Glorious” announcement, is now to be replaced by quality growth at a slower pace, with less lending.


In the past two years, Beijing has been able to achieve steady progress towards deleveraging, while growth remains above 6%. There is, however, still anxiety about a combination of bond defaults, a weaker RMB, and tighter liquidity, plus the trade tension with the US causing a financial panic.  The Shanghai and Shenzhen stock market has fallen sharply in June (down 7.4% and 7.8%, respectively).   Our funds continue to be 90% invested, with a strong focus on the high growth areas of Chinese biotech, tourism, and IT/internet, Indian financials and consumer, and some selected growth names, such as CyberAgent in Japan, an online gaming provider and Japan’s leading ad agency for mobile phone platforms.

The following chart is a useful one in the context of the trade conflict. China’s exports now stand at 18.5% of GDP, while their current account surplus only represents under 1% of GDP.  This compares to the height of the bull market before the GFC, when exports stood at 35% of GDP and the current account balance stood at 10.3%.  The overall risk in slowdown in the current account to overall GDP has shrunk over the years.

Source: Bloomberg

We are pleased to say that, despite the fall of MSCI Emerging Markets Index so far this year of about 6% and MSCI Asia Pacific Index of 3.4%, we are still recording a positive return for the year. We remain confident that we will deliver good results in the second half based on these strong fundamentals.  Our outlook remains fundamentally based on the assumption that trade tensions will be resolved, by China’s agreeing to buy an additional US$150 to US$200 billion of US food, energy, and other goods; an opening up of China’s industrial and financial sector; and a new commitment to respecting intellectual property.  This will provide President Trump with a “good news” announcement prior to the November mid-term elections, and will also significantly benefit the smaller trading nations of South East Asia and India, which have been trampled under by the two big elephants of international commerce, the United States (US$20 trillion GDP) and China (US$12 trillion GDP).

It is perhaps an auspicious moment for long-term investors in North America and Europe, to “dip a toe” into the Pacific markets, based on the long-term vision we have, that China and India, will be major economies and capital markets in the next 10 to 20 years and beyond.



Robert Lloyd George
9 July 2018
Hong Kong

Chinese Medicine

The heroic age of building in China which stretched from 1980 up to 2015 and even today, may be coming to an end. China today is a modern consumer economy similar to European countries (or Japan or Korea), with a large middle class, and consumption representing 60%+ of the economy compared to 40% a few years ago. Exports have fallen from 37% of GDP in 2006 to about 17% today, so the impact of potential trade tariffs is less than it was a decade ago.

Recently during a visit to Beijing, I learnt from many meetings with senior policy makers in Bank of China, State Administration of Foreign Exchange (SAFE) and China Investment Corporation (CIC), that the senior leadership is very confident that a compromise will be reached with President Trump in the next few weeks and that a trade war will be averted. This could indeed lead to a big rally in share prices both in New York and in Shanghai.

One fascinating area of research (and for us of long term investment) is the medical or healthcare field. Joseph Needham in his great work ‘Science and Civilisation in China’ established that almost every medical breakthrough occurred in China 500 years before Europe. Today, we have the uniquely positive set of circumstances whereby many Chinese PhDs from Stanford, Yale and Harvard are returning home and establishing new biotechnology businesses with world class standards, and scientists, involved. Among the companies we have already identified are Jiangsu Hengrui, CSPC and Wuxi Biologics, a major contractor with 240 drugs in the pipeline. Last week, we also visited BeiGene in the Life Science Park 20km north of central Beijing. It already has a capitalisation of US$11 billion with the promise that 3 important oncology products will be approved by the end of 2018. This is a Nasdaq listed company with important US shareholders, such as the Baker Brothers and Hillhouse Capital, other hedge funds, and even Merck. There is no doubt of its quality and of its potential, but to us it is a sign of the future trend in China. More and more biotech companies are coming to market, especially now in Hong Kong where the stock exchange has eased its listing rules to allow start-up biotech companies to list.

In the expectation that the trade talks will be settled, we are also optimistic about the technology sector in China. The news that Trump has relented on ZTE is important because it enables Chinese companies in the field of telecommunications and computer software to forge ahead even though China is still woefully short in its own national semiconductor manufacturing production.

Another key area of growth in China is domestic tourism. In the first quarter of 2018, 127 million domestic flights took place in China, a growth of about 11.5% from 2017. The expectation is that 550 million people will take flights in China this year, growing to 720 million by 2020. Including train travel, the figure rises to 1.3 billion. There are now 140 airports in China, accounting for most of the cities with over 1 million population. This is one reason we have focused on the hotel sector in our investment portfolio. By contrast, we have avoided the airlines where the advent of low-cost carriers will put pressure on profit margins.

The digital payment industry in China has also grown at an extraordinary pace since 2011, rising from US$15 billion that year to US$9 trillion today, or 80 times more than the USA, with the expectation that total mobile payments in China will reach US$47 trillion by 2020. Of course, this means that with the demise of cash, Chinese authorities, with the assistance of AI and big data technology, can track every payment and every e-mail that each citizen makes on a daily basis. Already 4 million Chinese individuals have been either denied travel permits or other benefits because of their low “civic score.”

I was also interested to discover that at very senior levels, there is a strong focus on Blockchain, and financial technology, in part because of the size of e-commerce and the on-line payment industry. There is a strong emphasis on security among the Beijing leadership; and even though there are very high transaction volumes, it is quite “transparent.” The leadership is also confident about the gradual resolution of the trade issue with GDP growth maintained at 6.5%, money supply at about 12%; and the debt ratio slowing down. Savings are still 45% of GDP, and most Chinese people like to own their own apartments, generally without large mortgages. (One major change could be a property tax, which has been widely discussed.) The government policy is, to open up to foreign ownership, most of the financial sector, including banks, insurance, and fund management; but there is no big rush on the part of foreign banks. The A Share market is generally undervalued, with banking shares under 1 times book, and many technology companies, growing at higher compound rates than their P/E multiples. The Hong Kong-Shanghai Connect has been a successful experience bringing in more capital into China. Now the authorities would like to see many of the big companies, such as Alibaba, which have New York listings, return to China, with the development of China depository receipts (CDRs instead of ADRs).

With the growth of this e-commerce market, I had expected to see physical retail spaces deserted or declining. In fact, some of the more up-market (up-scale) glitzy shopping centers in Beijing still maintain a high foot traffic, with not only international brand names, but also many new Chinese fashion brands restaurant chains. Dining out is now the most popular activity among young Chinese. Many of the millennial generation are less interested in accumulating material goods than having “experiences.”

It seems unlikely that Trump’s trade pressure on China will do much to break its rapid progress. In the 10 key sectors highlighted by the government in “Made in China 2025” – IT, robotics, aerospace, ocean engineering, railway equipment, electric vehicles, power equipment, advanced agricultural machinery, new metals and materials, and biotechnology – China is already making rapid progress; and much of the research is now taking place in laboratories in the major coastal cities, attracting some of the top Chinese scientists back from the US to work in good conditions with good salaries.

Robert Lloyd George
1 June 2018
Hong Kong

Disruptive Events and Technologies

The speed of change appears to accelerate both in technological disruptions and also in the diplomatic political area, as Donald Trump prepares to meet with Kim Jong-un. It is worth remembering that since the truce in 1953, North and South Korea and the United States have still been in a state of war, and no peace has ever been signed.  Hence, the existence of the Demilitarised zone, DMZ (about 1 mile wide) is a more complete barrier than the Berlin Wall ever was.

About 20 years ago, I had a visit in Seoul with the Minister for Reunification, who expressed to me the concerns that the South Koreans had, given that the 20 million population of North Korea was living at such a primitive economic level (and the country was suffering through a severe famine), the capital costs for South Korea to invest in, and upgrade, the infrastructure and living standards of North Korea would be 20 times that undertaken by West Germany for East Germany after 1990 (which cost US$1 trillion, and took nearly 20 years).

Nevertheless, the implication is that Kim Jong-un wants to modernise his economy just as Deng Xiaoping did for China after 1989, retaining the complete control of the Communist party (and his family) while allowing economic liberalisation and the advent of market forces. The West wrongly assumed that the Communist Party in China would wither away or lose control, under the pressure of the new economic freedoms.  But nearly 30 years later, it has not happened and President Xi Jinping is in more complete control than anyone since Mao.  Perhaps Kim Jong-un can do it too, but it is a much less sure prospect with a family dynasty (the only parallel is Cuba, where the Castros have finally handed over power to a new president after 60 years).

Investors may be bewildered by the speed of change, and it is necessary to have the “seeing eye” or look two steps ahead to see who may be the winners and losers of this tectonic change in the North Asian geopolitical balance. Japan is apprehensive.  South Korea’s Chaebol may be ready to seize hold of the opportunity of a new market. In the longer run, there is no doubt that China’s hegemonic influence over the Korean peninsula will be strengthened, and the US influence diminished.  Within 10 years, Taiwan may be absorbed by China.

The threat of US protectionism has already caused repercussions all around Asia, and China has responded by opening up its banking, insurance, fund management, and even automobile sectors. The shares of China’s domestic automobile manufacturers have fallen sharply.  Given a more open market in consumer (for instance, medical products), American and Western brands will most probably prevail.  We have also seen sharp falls in Chinese drug stocks.  Asia’s business model was to protect its infant industries for as long as possible, and now the Americans are getting tougher.  There will be a shakeout in these more vulnerable sectors.

India is the least affected economy because of its lower ratio of Foreign Trade to GDP, and its large domestic consumer market, which is unaffected by US protectionism. We continue to see a rapid growth of corporate earnings in India (nearly 23% in the coming 12 months) and we are confident that Mr. Modi has an assured re-election in May 2019.  Nevertheless, our main concern today is the rise in oil prices, which is pushing up India’s current account deficit from less than 1% back up to about 2% of GDP (it was 5% a few years ago).  The Rupee has fallen by 4% this year, and foreign investors are again becoming skittish.  Nevertheless, the flow of domestic savings and capital continues to support the Indian share market; and we do not think that there is a severe risk for the Indian economy, since the sensitivity to energy prices has reduced in recent years.

Although the meeting between North and South Korea on 27th April has received the top international headlines, an equally consequential but less reported meeting was held between Chinese President Xi Jinping and India Prime Minister Narendra Modi in Wuhan. These two countries represent 40% of the world’s population and have been linked culturally since before the Han Dynasty (200BC) or the era of Emperor Ashoka (232BC), both in trading networks as well as the travels of pilgrims and exchange of knowledge and religions.  The dissemination of Buddhism from India to China had a transformative effect on Confucian and Taoist culture.  Mr Modi wanted to meet President Xi Jinping in order to alleviate Himalayan Frontier tensions near to Bhutan, where there was almost a military clash last year.  In addition, India feels surrounded by Chinese diplomatic engagement in Pakistan, Bangladesh, Sri Lanka, Myanmar and, even more recently, the Maldives.  Mr Modi is a man of vision, and wants to keep peace with his neighbours, particularly with the May 2019 election approaching. Although both countries have close diplomatic relationship with the US, their own peaceful relationship is more important in its long term beneficial consequences for Asia, and for investors in the region.

One historic development this week was when Mr Modi announced that all 600,000 Indian villages now have access to electricity. As with the inclusion of many poorer Indian citizens to the modern financial economy (with 300 million new bank accounts being opened in the past 3 years) this development of power has a deep social and economic significance.

In conclusion, we are facing a volatile summer in Asian share markets, owing to the shadow of protectionism looming over the region. We have reviewed all our positions, both in the broad Bamboo Asian portfolio as well as the Indian Ocean region and are satisfied that we own the best companies, with good earnings prospects both in the immediate 12 months and beyond, which are worth holding, despite the short term buffeting of trade winds.  In particular, we have taken a positive view of the China A Share market, which has corrected by a considerable degree in the last year, but we view this as an opportunity because of its opening up to foreign investors and because of the underlying momentum of growth and profitability, particularly in the technology and medical sectors in China.

This month, we have engaged a Singapore based advisor similar to VAL-Q in India which will enhance our coverage of the markets in Singapore, Malaysia, Thailand, Indonesia and the Philippines. In fact, we have had an underweight exposure in these markets in the past 12 months, which has not hurt our performance.  The coming Malaysian election has caused a lot of political uncertainty.  Thailand, while appearing more stable under military government, is experiencing slow economic growth, despite the steadiness of the Baht.  Singapore remains a fairly overpriced market with high real estate values, although these have corrected over the past 5 years.  The most interesting market in South East Asia, in our view, is Vietnam which has risen about 40% in the past 12 months and retains the attraction of being a younger, faster growing, economy in a ‘catch up phase’ of manufacturing expansion.

Robert Lloyd George
4 May 2018
Hong Kong