September, 2023
Global markets pulled back during September on concerns that central banks, most notably the US Federal Reserve (Fed), may raise interest rates further. Although the Fed kept policy rates on hold at 22-year highs of 5.25- 5.50% during September, it left the door open for another rate hike later this year. Fed officials also indicated that rates could stay higher for longer throughout 2024 than they had previously anticipated. Confirmation of potential further upside in interest rates led to a spike in US10-year yields to a 17 year high of 4.8%. The USD also rallied by ~2.5% during the month. Historically, a stronger USD has been negative for flows into Emerging Markets and indeed this was a headwind throughout September. All Asian indices, with the exception of India (+1.5%) and Philippines (+2.4%) were down last month including MSCI China (-3%), Korea (-3.5%) and Taiwan (- 1.7%).
The Indian market performance is notable given it has outperformed most major indices over the past 3 months despite a~30% rally in the oil price. India imports ~80% of its oi requirements, so a higher price is typically negative for the current account balance and a potential headwind for economic growth. The resilience of Indian equities, however, has been driven by a number of important factors. First, is robust domestic demand with indicators such as PMI (60.9 in September) and credit growth (+15% yoy in September) pointing to a healthy economic environment. The second is India's ability to purchase cheap Russian oil, albeit this discount has narrowed in recent weeks. This along with solid tax collections (+12% yoy in the past 12 months) has helped fund a lift in government capex (+48% yoy in FY24YTD). Finally, strong inflows from foreign investors have helped to support the Indian market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2309-Ellerston-Asia-Growth-Fund-Hedge-Fund-Newsletter-.pdfAugust, 2023
Global equities pulled back in August as positive economic data, particularly from the US, revived investor concerns that central banks would need to further tighten monetary policy. Asian markets were relative underperformers with the MXASJ (in USD) down 6.6% compared to the MSCI World and S&P500, which was down 2.6% and 1.8% respectively. Within Asia, China was the worst performer with the MSCI China index down 9% during the month.
Chinese equities were weighed down in August by a spate of soft economic data. The most notable data point was headline CPI of -0.3%, which confirmed China was in deflationary territory. This led to investor concerns that China was heading for a debt deflation spiral akin to what Japan experienced during the 1990s. Although overall leverage in China is high (debt to GDP of ~300% in 2022) and demographics are weakening, we believe that 'Japanification' can be avoided due to a number of reasons. Firstly, China still has meaningful growth potential driven primarily from productivity gains. Secondly, there are no signs in China of an asset price bubble similar to what Japan experienced in the 1980s that could trigger a forced deleveraging event. Finally, Chinese policy makers have tools at its disposal to reflate the economy and keep real GDP growth above real interest rates. So whilst the pace of policy action in light of a slowing economy has so far have been disappointing, we continue to expect supportive countercyclical policies to be announced over the coming months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2308-Ellerston-Asia-Growth-Fund-Hedge-Fund-Newsletter.pdfJuly, 2023
It was another solid month for global equities in July, driven by further evidence of moderating inflation and better than expected earnings out of the US. Asian markets, however, were relative outperformers with the MXASJ (in USD) up +5.7% compared to the MSCI World and S&P500, which were up +3.3% and 3.1% respectively. Within Asia, China (MSCI China +9.3%) and South East Asian markets such as Malaysia (Bursa +6.0%) and Singapore (Straits Times +5.0%) were the standouts.
The outperformance of China was driven by positive sentiment following a Politburo meeting held during the month. Within this meeting, policymakers acknowledged that the economy currently faces challenges and pledged more countercyclical easing measures in order to revive demand. Sectors that were singled out for further stimulus included property, infrastructure. consumption (auto, home appliances, electronics, sports/leisure and tourism) and capital markets. We are cautiously optimistic on the prospects of tangible policy action (rather than just rhetoric) in the coming weeks, and this is reflected in our positioning, with China/HK representing -48% of the portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2307-Ellerston-Asia-Growth-Fund-Hedge-Fund-Newsletter.pdfJune, 2023
Global equities performed strongly in June driven by moderating inflation, the prospects of an economic soft-landing in the US and euphoria around the artificial intelligence thematic. Asian marketswere relative underperformers with the MXASJ (in USD) up +2% compared to the MSCI World, which was up +6%. Within Asia, China (MSCI China +3%) and India (NSE500 +4%) led the way. We remain positive on the outlooks for both the Chinese (>5% GDP growth in 2023) and Indian (6% GDP growth) economies and this is reflected in our positioning, with these two markets representing —60% of the EAFZ portfolio.
On China, a number of fiscal and monetary stimulus measures have been announced in recent weeks to address the sputtering economy. Specifically, the PBOC cut key interest rates by 10bps during June. Meanwhile, the Government announced debt relief for property developers, support for home appliance consumption and extension of tax breaks on electrical vehicle (E14 purchases. We expect further supportive policies to be rolled-out in the coming months, particularly in theconsumptionand property sectors. This will likely drive the second phase of China's post-COVID recovery. As such, we see any weakness in Chinese equities as an opportunity to accumulate high quality companies trod i ng at attractive valuations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2306-Ellerston-Asia-Growth-Fund-Hedge-Fund-Newsletter.pdfMay, 2023
EAI was down 1.0% (net) in May versus the MSCI Asia ex Japan (MXASJ) Index which was flat for the month. Meanwhile, EAGF was down 0.8% (net). As the strategy enters a new phase of its lifecycle, we believe it would be appropriate to provide an overview of EAFZ's philosophy and current market outlook, portfolio positioning and significant positions.
Positioning and Significant Positions At a regional level, we are currently most positive on Chinese and Indian equities due to the world-leading growth that both economies are forecast to achieve in the coming years. These two markets account for —57% of the EAFZ portfolio. At a sector level, we have taken a barbell approach to portfolio construction with a large weighting towards quality growth names in the technology and consumer sectors as well as exposure to interest rate sensitive names in the financials sector. We believe that these three sectors provide the best exposure to the structural growth drivers that was highlighted earlier such as demographics, technology leapfrogging and innovation, rising middle class and capital market liberalisation.
File:April, 2023
Ellerston Asia Growth Fund (EAGF) was down 1.97% (net) in April versus the MSCI Asia ex Japan (MXASJ) Index which was down 0.87%.
Volatility eased in April particularly in developed markets as expectations that global central banks are at the tail end of their respective hiking cycles and a better than feared reporting season in the US eased market concerns. Despite the recent respite, global market sentiment remains fragile given ongoing concerns around the regional banking system and debt ceiling deadline in the US and lingering recession fears in both the US and Europe.
Asian markets underperformed developed markets during the month dragged down by Chinese equities. This was despite the release of better-than-expected 1Q23 GDP growth (+4.5% YoY) and retail sales (+10.6% YoY) data along with improving property activity (sales +4.1% YoY in 1Q).
The underperformance of Chinese equities since January despite growing evidence of economic cycle divergence between China (accelerating) and the US and Europe (slowing) has been surprising. It is apparent that the wall of worry for investing in China remains high. We however believe that the vectors of uncertainty with regards to Chinese equities have gradually been removed. Indeed over the past 6 months, the Chinese Government has abandoned zero-COVID, eased regulatory restrictions, provided stimulus for the property sector and maintained a supportive monetary policy environment.
Importantly, these catalysts have started to translate into positive economic data and corporate earnings growth. Yet despite these positive developments, MSCI China continues to trade at the same multiple as it did back in December last year of 10.3x forward PE and 1.2x PB. These depressed valuations compare favourably to forecast earnings growth for the market of ~15% over the next 12 months and low teens ROE.
File:March, 2023
Ellerston Asia Growth Fund (EAGF) wasup 3.25% (net) in March versus the MSCI Asia ex Japan (MXASJ) Index which was up 4.0%. March was a volatile month for global equity markets with the banking turmoil in the US and Europe weighing on returns early in the month, followed by a strong rebound after measures to stabilise the financial sector were announced.
File:February, 2023
The Ellerston Asia Growth Fund (EAI) was down 3.8% (Net) in February versus the MSCI Asia ex Japan (MXASJ) Index, which was down 2.7%. Asian markets, led by Greater China, were weak in February, giving back some of the January gains. China’s reopening story softened with the rise of political tensions between US and China. The revised market expectation of US interest rates staying “higher for longer” likely triggered the global risk off which got further accentuated in Asia due to increased geopolitical tensions. However, the overall market sentiment in EM remained good with continued fund inflows from both active and passive mandates.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2302-Ellerston-Asia-Growth-Fund-Newsletter.pdfJanuary, 2023
Ellerston Asia Growth Fund (EAGF) was up 4.6% (net) in January versus the MSCI Asia ex Japan (MXASJ) Index which was up 4.1%. Global equities got off to a strong start in January driven by falling stagflation concerns leading to expectations of less hawkish monetary actions by central banks in 2023. The China reopening story has also fueled optimism that a ‘hard landing’ scenario for global growth can be averted. Indeed, MSCI World, S&P500 and ASX200 finished the month up 6.5%, 6.3% and 6.2% respectively.
Asia was a relatively outperformer with the MXASJ (in USD) up 8.2% led by North Asian countries such as China (+11.8%), Korea (+8.4%) and Taiwan (+8.0%). The strong start for global market equities is in stark contrast to the reality that inflation in most countries (ex-China) remain above central bank target ranges, interest rates continue to rise and the US Federal Reserve (Fed) is withdrawing liquidity from the system. Markets are ‘fighting the Fed’ despite the fact that risks to elevated inflation are still in place such as tight labour markets, the ongoing war in Ukraine and the reflationary impulses from the China reopening.
We therefore continue to see greater downside risk to the outlook for developed markets equities relative to Asia in 2023. Furthermore, Asia led by China looks significantly more attractive than developed markets from a risk reward perspective. For instance, the MXASJ is currently trading on a forward PE of 12.5x, with MSCI China on a cyclical depressed 11x PE. Earnings growth for MXASJ and MSCI China are forecast to be ~6% and ~20% respectively over the next 12 months. This compares favourably to the S&P500 and ASX200 which are trading on 18.5x and 15x respectively and forecast to deliver flat to low single-digit earnings growth over the next year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2301-Ellerston-Asia-Growth-Fund-Newsletter.pdfDecember, 2022
Ellerston Asia Growth Fund (EAGF) was down 1.0% (net) in December versus the MSCI Asia ex Japan (MXASJ) Index which was down 1.6%. December saw Asia led by China outperform developed markets (DM). The MSCI China Index was up 5.2% during the month compared to the S&P 500 and ASX 200 which were down 5.8% and 3.2% respectively as hawkish rhetoric most notably from the US Federal Reserve (Fed) drove a pullback in DM equities. Since the late October sell-off in Chinese equities, MSCI China has outperformed the S&P 500and ASX 200by 36% and 33% respectively. We wrote in our last newsletter that an inflection point in the outlook for Chineseequities had likely been established due to the dramatic shift by policymakers towards restoring economic growth. The likely growth divergence between China and DM in 2023 could therefore drive continued outperformance of MSCI China in the coming months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2212-Ellerston-Asia-Growth-Fund-Newsletter.pdfNovember, 2022
Ellerston Asia Growth Fund (EAGF) was up 12.2% (net) in November versus the MSCI Asia ex Japan (MXASJ) Index which was up 13.3%. November provided some welcome relief for equity investors as global markets rallied on softer than expected US inflation data and positive policy developments coming out of China. It remains unclear whether the US Federal Reserve has been done enough to bring inflation back to its 2% target (vs 7.7% in October). The outlook for China on the other hand has turned significantly more positive in recent weeks and this drove strong equity market performances during November with the Hang Seng Index and CSI300 up 27% and 10% respectively.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2211-Ellerston-Asia-Growth-Fund-Newsletter.pdfOctober, 2022
Ellerston Asia Growth Fund (EAGF) was down 6.5% (net) in October versus the MSCI Asia ex Japan (MXASJ) Index which was down 5.6%. It was an extremely volatile month for Asian markets with the MXASJ rising as much as 3.8% (in AUD terms) in early October on the back of positive global sentiment, before finishing down 5.6% on further negative events out of China.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2210-Ellerston-Asia-Growth-Fund-Newsletter.pdfSeptember, 2022
China and Korea were the largest contributors to alpha during the month. Whilst, India and Hong Kong were the largest detractors. At a sector level, Financials was the biggest contributor to relative performance. Meanwhile, Consumer Discretionary and Materials were the worst performers.
At a company level, DBS, Bank of Mandiri, and Moutai were the biggest contributors to relative performance during the month. South East Asian financials were well supported by optimism around the post-pandemic economic rebound across the region. Moutai meanwhile performed resiliently amidst the broader market weakness given its defensive earnings growth driven by industry leadership, brand strength, and healthy supply/demand dynamics.
JD.com and BYD were the biggest drags on alpha. The weakness in JD.com shares reflects concerns over the impact of recent COVID-related disruptions on consumption demand. Meanwhile, BYD's share price continued to be impacted by the liquidity overhang created by the sell-down of Berkshire Hathaway (BYD's largest shareholder) in late August/early September. However as written in last month's commentary, we remain positive on the business outlook for BYD with earnings forecast to double over the next two years due to strong demand for its mass-market electric vehicles as well as outsourcing opportunities for its EV batteries. In the near term, the company has 4 months of order backlog and has exhibited commendable pricing power by increasing prices for its vehicles multiple times this year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2209-Ellerston-Asia-Growth-Fund-Newsletter.pdfAugust, 2022
Ellerston Asia Growth Fund (EAGF) was up 0.2% (net) in August versus the MSCI Asia ex Japan (MXASJ) Index which was up 1.6%.
China and Hong Kong were the two weakest markets regionally during August and this negatively impacted the performance of the fund. As regular readers would know, we recently turned positive on the outlook for Chinese equities driven by expectations of counter-cyclical policy stimulus in the second half of 2022. Indeed there were further supportive policies announced during August including interest rate cuts by the PBOC and a raft of fiscal measures from the State Council and local governments focused on infrastructure construction, property sector stability, and consumption.
Despite these stimulus measures, the Chinese economic recovery has thus far been a case of two steps forward, and one step back. The reason for this remains China's ongoing zero-COVID policy. Over the past month, a number of major cities such as Shenzhen, Chongqing, and Chengdu were placed into localized lockdown. As of early September, the number of cities affected by full or partial lockdown accounted for —17% of China's GDP (vs <5% in early August). We note however that the number of daily symptomatic cases across China remains quite steady at —350. This is likely due to a step-up in the timeliness of COVID containment and the frequency of testing. As such, we believe a repeat of the harsh lockdowns seen in April/May is unlikely. Nonetheless, China's COVID suppression policy will remain an overhang on the economy until at least the 20th Party Congress starting on October16, when President Xi is likely to be re-elected for another term.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2208-Ellerston-Asia-Growth-Fund-Newsletter.pdfJuly, 2022
Ellerston Asia Growth Fund (EAGF) was down 3.9% (net) in July versus the MSCI Asia ex Japan (MXASJ) Index which was down 3.1%. July saw a return of China related concerns and that negatively impacted EAGF performance during the month. We continue to maintain a positive view on the outlook for Chinese equities and the potential for it deliver uncorrelated returns to the rest of the world in the second half of 2022. Ongoing supportive fiscal and monetary policies, low valuations and light investor positioning support our overweight position to that region.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2207-Ellerston-Asia-Growth-Fund-Newsletter.pdfJune, 2022
Ellerston Asia Growth Fund (EAGF) was up 0.14% (net) in June versus the MSCI Asia ex Japan Index which was down 0.96%.
June was another tough month for global equity markets with investor concerns focused on the impact that high inflation and rising interest rates will have on global growth. Asia fared better than most other regions, with the MXASJ down 5.1% in USD terms compared to the S&P 500 and the ASX 200 which were down 8.3% and 8.8% respectively. The relatively outperformance of Asia was due to China/HK as an improving macro outlook helped sentiment.
China/HK was the best performing region in June with the CSI300 and Hang Seng Index up 9.6% and 2.0% respectively. The positive market performances were driven by further evidence of improvement in China’s COVID situation, policy easing and softening of private sector regulations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2206-Ellerston-Asia-Growth-Fund-Newsletter.pdfMay, 2022
Ellerston Asia Growth Fund ( EAGF ) was up 0,4% ( net ) in June versus the MSCI Asia Ex Japan index wich was down 0.96%. June was another tough month for global equity market with investor concern focused on the impact that high inflantion and rising interest will have an global growth
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2206-Ellerston-Asia-Growth-Fund-Newsletter-1.pdfApril, 2022
Indonesia and Singapore were the largest contributors to alpha during the month. Whilst Taiwan and Hongkong were the largest detractor. At a sector level,Energy and Consumer Staples were the biggest contributors to performance meanwhile, industrial and Information Technology were the worst performers. at a company level, Reliance industries, Kweichow Moutai, and bank of Mandiri were the main alpha generators for the portfolio. The positive moves in Reliance industries reflect earnings tailwinds from rising refining margins and tariff hikes in its Jia telecom business.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2204-Ellerston-Asia-Growth-Fund-Newsletter.pdfFebruary, 2022
Elerston Asia Growth Fund (EAGF) Was down 5.74% ( net ) in February versus in MSCI Asia ex Japan inex was down 5,24%
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2202-Ellerston-Asia-Growth-Fund-Newsletter.pdfMarch, 2022
Ellerston Asia Growth Fund ( EAGF) was down 6.72% (net) in March versus the MSCI Asia EX Japan index which is down 6.20%.March 2022 was of the most volatile months for Asian markets in recent memory-driven primarily by geopolitical and COVID related concerns in China
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2203-Ellerston-Asia-Growth-Fund-Newsletter.pdfDecember, 2021
Ellerston Asia Growth Fund (EAGF) was down 2.02% (net) in December versus the MSCI Asia ex Japan Index which was down 1.30%.
December was yet another volatile month for financial markets driven by the spread of the Omicron COVID variant and the repricing of US monetary policy expectations. We discuss these factors below along with a quick update on the developments out of China.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2112-Ellerston-Asia-Growth-Fund-Newsletter.pdfNovember, 2021
Ellerston Asia Growth Fund (EAGF) was up 1.81% (net) in November versus the MSCI Asia ex Japan Index which was up 1.77%.
Despite the positive market performance, November was a volatile month for financial markets caused by continued weakness in the Chinese internet sector, the emergence of a new COVID variant and an unexpectedly hawkish US Federal Reserve (Fed). We discuss these factors in detail below
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2111-Ellerston-Asia-Growth-Fund-Newsletter.pdfOctober, 2021
Ellerston Asian Growth Fund (EAGF) was down 1.81% (net) in October versus the MSCI Asia ex Japan Index which was down 2.56%.The key focus for investors in October were: (i) the ongoing China risks; (ii) the 3Q21 reporting season; and (iii) central bank tapering/tightening. We discuss these issues in detail below
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2110-Ellerston-Asia-Growth-Fund-Newsletter.pdfAugust, 2021
August was difficult month characterized by significant volatility due to the ongoing regulatory crackdown in China, Ellerston Asia Growth Fund (EAGF) was flat in August versus MSCI Asia ex Japan index which was up 2.6% after being down as much as 4.6% during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2108-Ellerston-Asia-Growth-Fund-Newsletter.pdfJuly, 2021
Ellerston Asian Growth Fund ( EAGF ) was down 5.31% (net) in July versus the MSCI Asia ex Japan Index wich was down 5.80" Calendar year to date in 2021, EAGF is up to 1.96% compared to the benchmark which is up to 2.20%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2107-Ellerston-Asia-Growth-Fund-Newsletter-1.pdfJune, 2021
The Ellerston Asia Growth Fund was up 2.75% net in June versus the MSCI Asia ex-Japan index which was up 2,68%. In the fact 2021 financial year EAGF was up 23.99% compared to the benchmark which was up 25.75%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2106-Ellerston-Asia-Growth-Fund-Newsletter.pdfMay, 2021
The Ellerston Asia Growth Fund was up 0.6% ( net ) during May versus the benchmark which was up 0.8% ( net ) Financial year to date in 2021, EAGF is up 20.67%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2105-Ellerston-Asia-Growth-Fund-Newsletter.pdfDecember, 2020
The Ellerston Asia Growth Fund (EAGF) was up 1.62% (net) during December versus the benchmark which was up 1.81%. In calendar year 2020, EAGF was up 12.14% and outperformed the benchmark by 0.57% (net). Compared to November, which included the US election, Ant IPO cancellation, positive vaccine news and extreme sector and factor rotation, December seemed like a relatively subdued month.
The main events that impacted markets and the EAI portfolio during the month were: (1) Ongoing first waves or resurgent second waves of COVID-19 in key developed markets (US, UK) despite the initiation of vaccine roll outs; (2) Heightened antitrust measures for Chinese internet and e-commerce companies; and (3) Strong performance by Electric Vehicle (EV) and green stocks in China and globally.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2012-Ellerston-Asia-Growth-Fund-Newsletter.pdfasset_class: Foreign Equity
asset_category: Asia Pacific w/o Japan
peer_benchmark: Foreign Equity - Asia ex Jap Index
broad_market_index: World Emerging Markets Index
manager_contact_details: Array
ticker: ECL1411AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://ellerstoncapital.com/funds/asia-growth-fund/
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fund_features:
An actively managed, concentrated portfolio of Asia ex-Japan listed companies that is benchmark independent and has a focus on capital growth and downside protection. The Fund’s investment strategy is to provide access to a high quality portfolio of primarily large cap Asian Companies using the Manager’s distinctively high growth, high conviction and benchmark independent investment approach. The Manager believes that the trade-off between risk and potential returns at the portfolio level is improved by implementing highest conviction ideas from a filtered universe of securities that offer the best risk/reward.
structure: Managed Fund