Martin Currie Asia Unconstrained (formerly Martin Currie Pacific) has announced its interim results for the half-year ended 30 September 2015. During the period the trust, managed by Andrew Graham (pictured), has reportedly given up most of the gains made in the previous financial year to 31 March 2015. On a total return basis, the trust’s NAV fell 19.2% whilst its share price fell 19.7%. Although the trust’s mandate is now unconstrained and so it’s performance is not measured relative to a benchmark, the MSCI Asia ex-Japan Index fell 18.1% over the same period and so the trust’s performance is not hugely dissimilar to this. The board has commented that, “It is disappointing that an apparently defensively constructed, quality portfolio failed to outperform on the downside”. However, they also say that in their view, Asian dividend yields remain attractive as a component of total return and the trust has seen a recovery in its income account with the six month revenue return per share of 5.62p providing a 41% increase year-on-year (2014: 3.98p), whilst exceeding the 4.82p earned during the whole of last year.
The managers says that, with share prices moving sharply lower during the third quarter, they are not surprised that the company’s portfolio also suffered. However, they are disappointed that the portfolio fell in a s similar way to the broader market as they would have expected its participation to be more muted in a market sell-off scenario. The managers believe that this can partly be explained by the sharp spike in correlations as the sell-off gathered pace, and partly by several stock specific factors.
Two of the company’s stocks were up in absolute terms. Shares in the Indian automobile manufacturer Maruti Suzuki rose. The managers say that the underlying performance in the passenger vehicle market in India remains solid and the company continues to gain market share. Its firtst quarter results were very strong with net profits up 56% year on year. Indian consultancy firm Infosys also performed well. The managers say that the company’s first quarter results were better than expected and that their conviction is reinforced by the new CEO, who has laid out his future strategy with particular emphasis on digital technologies. Other stocks that held up relatively well during the rout included Tata Consultancy, Café de Coral, LG H&H, Johnson Electric and Samsonite.
Hong Kong based media company Television Broadcasts Ltd (‘TVB’) was the worst performing stock, suffering a 46% decline in its share price over the period on the back of the company’s poor first-half results. The managers believe that the recent announcement by Netflix of a competitive launch in Hong Kong in early 2016, combined with weak markets, saw significant additional selling pressure on its shares. However, they believe that the weaker result is more to do with the advertising cycle in Hong Kong, rather than a loss of market share by TVB. They say that the firm also plans to launch an internet-TV service which would be much less costly than running the pay-TV service it replaces and that they believe TVB’s Hong Kong market share is defendable and with potential options to access the China market; the shares are now undervalued.
AIA Group, the Hong Kong listed life insurer, is the largest single position in the portfolio. The share price fell 17% as sell-side analysts reacted to the recent weakness of many Asian currencies by downgrading earnings projections (AIA reports in US dollars). However, the managers believe that the company is superbly positioned to benefit from the expansion of household income in Asia and the increasing demand for savings and protection products.
Thailand’s Siam Commercial Bank (SCB) was another notable faller with its share price declining by almost 25% due to concerns over a slowing Thai economy and how this will be reflected in margin pressures from interest rates cuts and higher credit costs. The managers believe that SCB’s management can negotiate the present challenges and say that its 3.8% dividend yield is well underpinned by earnings.
In addition to the stocks highlighted above, other notably weak contributors during this period were Genting Berhad, Samsung Electronics, Jardine Matheson and Global Logistic Properties.
In terms of outlook, the managers say that it is clear is that certain countries, such as Indonesia and Malaysia, are under some significant pressure. However, while the stock market rout in China has been severe and its economy is undergoing a difficult transition, there are few signs yet of systemic risk in the financial system. The Shibor (Shanghai interbank offered rate) remains at relatively low levels, suggesting liquidity is still adequate in money markets. Additionally, although the headline economic data on China has generally been weak over the past six months, some of the underlying consumption data points have continued to expand at a solid pace. The managers say that they are positive on Asia’s longer-term outlook and believe that three secular dynamics will underpin future growth. Burgeoning consumption is supported by population expansion, urbanisation and rising incomes. Trade growth is supported by intra-regional trade through the Trans Pacific Partnership (‘TPP) and the Asian Economic Community (‘AEC’) while the impact of technology, almost certainly a significant disruptor in some sectors, will likely be an enabling force in others.
Martin Currie Unconstrained Asia suffers from weakness in Asian markets : MCP