April, 2022
Asian equity markets declined in local currency terms over the month, however a 5.4% depreciation of the Australian Dollar more than offset these declines for the quoted AUD MSCI Asia ex Japan Index. The underlying equity portfolio outperformed broader markets given the limited exposure to the technology and internet sectors, which were amongst the weakest performers in April. CNOOC Limited, TravelSky Technologies and SABECO were amongst the positive contributors to performance while Frontier Digital Ventures, Wynn Resorts and Freeport McMoRan were the largest detractors.
The sell down of the portfolio commenced after the mandatory 28-day notice period lapsed (22 April 2022) and at month end the Fund had liquidated the majority of its positions resulting in cash holdings increasing to 90.6%. The process of portfolio liquidation and the conversion of funds back into Australian Dollar also impacted relative performance as Asian markets appreciated in the last week of April.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-April-2022.pdfMarch, 2022
The portfolio was negatively impacted by a selloff in Chinese equities over the period. While the portfolio maintains a meaningful position in Chinese facing businesses, an overweight commodities position and the decision to run a higher cash balance after realising several investments supported relative performance.
China’s largest COVID-19 outbreak since the start of the pandemic, growing concerns around China’s involvement in the Russia-Ukraine conflict and the potential delisting of US-listed Chinese ADR’s were all factors in a sharp selloff in Chinese equities over the month. Chinese ADR’s were once again in focus after five companies were identified as being at risk of delisting for failing to adhere to the Holding Foreign Companies Accountability Act. The Act, passed last year, requires the SEC to prohibit the securities of any company from being traded on U.S. exchanges if its auditor is not subject to inspection by the U.S. Public Company Accounting Oversight Board (“PCAOB”) for three consecutive years, beginning in 2021. The portfolio’s only ADR position,
Melco Resorts and Entertainment, sold off on these developments. TravelSky was negatively impacted by the recent COVID-19 outbreaks and lockdowns seen in Shenzhen and Shanghai. Rising COVID-19 cases will delay the recovery in aviation activity which TravelSky directly benefits from. Commodity prices experienced a sharp spike in March as investors assessed the impact the escalating conflict between Russia and Ukraine will have on commodity markets. Most notable were the price moves in oil, coal, nickel and wheat given the importance Russia (and Ukraine) play in supplying those markets. Positive contributors to performance included CNOOC, Freeport McMoRan and MMG Limited.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-March-2022.pdfFebruary, 2022
Frontier Digital Ventures was the single biggest detractor to performance over the month despite reporting a solid full year result. This underscored the progress the company has made in its pursuit of their ‘Classified 2.0 Strategy’ which aims to embed the business at the centre of property and automotive transactions. We believe the economics of this model will be superior to the legacy classifieds business of collecting fees for providing a passive listing service. Frontier Digital Ventures’ performance mirrors that of other ASX listed online classified businesses REA Group, Carsales and Seek Ltd. (not held) which have all declined more than 20% from their 52-week highs. The portfolio’s commodity and energy holdings acted as a counterbalance to broad market weakness and assisted relative performance. Industrial metals and energy prices advanced over the month as investors evaluated the impact a conflict in Ukraine and the subsequent sanctions on Russia would have on the supply of natural resources. CNOOC remains well supported with spot Brent Crude Oil approaching the $100 mark for the first time since 2014, while Freeport McMoRan benefited from higher copper and gold prices.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-February-2022.pdfJanuary, 2022
CNOOC announced various capital management initiatives at its annual strategy briefing in January in an effort to address the company’s relative valuation discount to international peers.
CNOOC has committed to minimum annual dividend which implies 8% yield in each of the next three years. We think at spot this will be materially higher, likely in excess of 10%. It also plans to announce a special dividend and the details of an inaugural buyback program at its upcoming F22 results.
China Mobile also announced plans to buy back US$12.5bn of h-share stock after completing its a-share IPO. The buyback represents about 10% of its issued h-shares.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-January-2022.pdfDecember, 2021
The portfolio returned 4.1% over the quarter. The main positive contributors were our positions in the copper companies Freeport McMoRan and First Quantum Minerals in addition to our position in alternative asset manager Apollo Global Management.
Copper positions were a key contributor to returns for the quarter with several catalysts supporting strong share price performances. Supply disruptions have again come into focus with MMG’s Peruvian Las Bambas mine forced to cease production given community protests along its primary transportation routes. Las Bambas contributes between 1-2% to annual copper supply when fully operational. Supply disruptions are of heighted importance given the physical copper market remains very tight with inventories at historically low levels. An increased focus on inflation and inflation beneficiaries also buoyed copper/ gold producers over the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Quarterly-Report-31-December-2021-Managed-Funds_0-1.pdfNovember, 2021
The portfolio was negatively impacted by the emergence of the Omicron Covid-19 variant which the World Health Organisation announced as a ‘variant of concern’ in late November. Portfolio positions that were leveraged to the reopening of global borders and a corresponding acceleration in economic activity were most impacted. Commodities were also weaker, most notably oil, which impacted our commodity holdings. The Australian dollar continued its downward trend in November finishing near to its twelve-month low relative to the US dollar. The US dollar has been the overriding factor in currency markets, appreciating against most crosses. Our Australian dollar exposure does not cost us per se; however we do not capture the full benefit of stronger foreign currencies on our overseas holdings and a relative comparison to the broader index is negatively impacted. The portfolio continues to run with a material cash balance of 12% and this elevated cash position puts us in a strong position to take advantage of any short-term disruption in markets to either add to existing positions or initiate positions where we have been patiently waiting for an entry point.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-November-2021_0.pdfOctober, 2021
Classified holdings iCar Asia and Frontier Digital Ventures contributed positively. iCar Asia signed binding transaction documents with Carsome at a revised $0.53 per share, the Scheme of Arrangements will now proceed to a shareholder vote. Frontier Digital Ventures reacted positively to a quarterly update which again showed the strong recovery experienced by its classified portfolio since the onset of Covid19. Property classified businesses Zameen and Infocasas were standouts as transaction linked revenues continue to drive rapid revenue growth. Copper producer Freeport McMoRan rebounded strongly in October, benefiting from a higher copper price. Furthermore, strong third quarter results underscored the positive operating leverage the business has in the current commodity price environment. Freeport continues to deleverage at a much faster rate than analysts had previously expected and subsequent to month’s end announced a new capital management program which includes a $3bn buyback program.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-October-2021.pdfSeptember, 2021
Macau’s government commences its long-awaited gaming law review • Commodities take a breather after period of strong performance as investors focus on economic growth in China • Consumer holdings provide support to performance.
The portfolio declined 1.5% in September compared to the market which declined 3%. Gaming positions detracted from performance after the Macau government formerly commenced a review of the city’s current gaming law which precedes the upcoming license tendering process. While these two events had been expected, the release of the government’s official public consultation document was negatively received by the investors. The primary areas of concern centre around three areas of debate raised by the government; 1. more formalised oversight for government over operations, 2. increased control over dividends and 3. increasing local ownership. We will discuss these issues in greater depth in the September quarterly. China’s economic growth trajectory was at the forefront of debate in September as investors weighed the impact of an impending debt default at property developer Evergrande and a mounting electricity supply crisis which has triggered a temporary shutdown of several energy intensive industries. Industrial metals were weaker as a result, most notably iron ore which is closely tied to the Chinese property sector. The weakness in commodity prices flowed through to our copper holdings.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-September-2021.pdfAugust, 2021
August marks the height of earnings season in Asia, driving company specific news flow.
• Carsome and Catcha Group receive joint bid relief from ASIC, a condition of its takeover offer for iCar Asia.
Much of the portfolio reported either quarterly or half yearly results during the month, providing us with another opportunity to access the operational progress of each business. Overall results were pleasing, with no major negative surprises causing changes to our underlying investment theses. Earnings announcements acted as key share price catalysts for Kunlun Energy and China Merchant Ports in particular, with both stocks advancing over 20% after comfortably beating earnings expectations.
iCar Asia continued to progress discussions with Carsome with respect to the latter’s non-binding takeover offer. Carsome and Catcha Group obtained joint bid relief from ASIC in relation to the share sale agreement (Carsome acquiring a 19.9% stake in iCar Asia from Catcha Group) and the subsequent joint bid for the remaining shares in the Company. The parties are currently in a period of confirmatory due diligence, which ends on the 8th of September.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-August-2021.pdfJuly, 2021
iCar Asia received a takeover offer from Singapore based Carsome Group which values the company at A$243 million ($0.55 per share), superior to the previous non-binding offer from Autohome Inc. While the offer is currently non-binding, we believe the likelihood of a formal deal being reached is highly probable given the proposal is effectively a joint bid with iCar Asia’s largest shareholder, Catcha Group. Strong earnings announcements from Frontier Digital Ventures and MMG Limited acted as a positive share price catalyst for both companies. Frontier Digital Ventures, which owns a portfolio of online classified business in emerging markets, continues to show material progress in monetising its customer base which has driven strong revenue momentum despite COVID-19 pressures. MMG Limited preannounced a record first half earnings supported by elevated metal prices.
Chinese equities sold off sharply after several announcements from the government prompted investors to reassess the regulatory risks associated with ownership of Chinese companies. While the portfolio does not hold any positions in sectors directly impacted by recent regulatory announcements (i.e. private education, internet services), the market as a whole was negatively impacted.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-July-2021.pdfJune, 2021
Despite the recent Covid-19 outbreak being experienced in India, positions in Indian credit rating agencies contributed meaningfully to performance over the month. CRISIL, the largest rating agency firm within India and a controlled subsidiary of S&P Global advanced 31%. CRISIL’s outperformance comes after the company announced stronger than expected earnings in late May. Frontier Digital Ventures announced the acquisition of the outstanding minority interests in property portal Infocasas. Frontier acquired an initial 31.2% stake in Infocasas back in September 2017 and subsequently increased its shareholding to controlling 51% in early 2020.
We consider the deal to be well structured with a majority of the consideration consisting of earnout payments subject to profitability hurdles over the next two years. The portfolio’s copper positions gave back some of the gains achieved over the past years after the copper price declined from record highs. Several factors acted as negative headwinds for base metal prices, most notable were China’s decision to make available its strategic reserves in an attempt to ease souring base metal prices, as well as a weakening US Dollar post the US Federal Reserve commentary.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-June-2021.pdfMay, 2021
Commodity prices sustained their upwards momentum during May, albeit with increasing volatility, providing a positive backdrop for resource companies. Freeport was once again the standout contributing positively to performance while MMG Limited detracted as investors contemplate the likelihood of higher taxes at its Las Bambas mine. MMG also announced a private placement priced at an 8% discount to its last close, the proceeds of which will be used to fund future expansion projects.
Frontier Digital Ventures was the largest single detractor to performance over the period despite a lack of any company specific news flow. Rather, Frontier has been caught up in the selloff being experienced more broadly by high growth companies, not just in Australia where it is listed, but globally. We continue to maintain a positive view on Frontier believing that the long term earnings outlook in its core markets remains underestimated by the investment community.
We established a new position in China Construction Bank during the month. Large cap Chinese ‘value stocks’ – financials included amongst this – is one area of the market which has not participated in the broad market re-rating experienced over the past 12 months and we increasingly we see value emerging here.
We also increased our effective Australian Dollar position via options during the month, viewing the currency as becoming increasingly dislocated from the underlying commodity price environment which is supporting strong domestic economy.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-May-2021.pdfApril, 2021
Copper companies once again were material contributors to performance after the copper price extended above $10,000/t, a price level not achieved since February 2011. Given the elevated copper price observed during the first quarter, all our copper holdings reported strong first quarter earnings results. We continue to monitor commentary from the major industry participants to gauge their reactions to higher prices and the inevitable supply response. To date, the message has broadly been consistent with a focus on post Covid-19 production normalisation, debt reduction and increasing shareholder returns.
A re-emergence of Covid-19 cases across parts of Asia, most notably in India, has led to some reopening optimism fading, and consequently companies benefiting from a gradual easing of movement restrictions across the region took a breather in April.
Amongst our portfolio holdings Travelsky, as well as the Macau casino operators, were most impacted. China and Macau have done an exceptional job of controlling Covid-19 outbreaks and local transmission of the virus remains negligible; however the zero-tolerance approach has resulted in a slow recovery in gaming activity.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-April-2021.pdfDecember, 2020
Turquoise Hill Resources contributed positively to performance after two announcements regarding its Oyu Tolgoi development. Firstly, mine operator Rio Tinto released the final Definitive Estimate for the underground project, with development expenditure now expected to be US$6.75 billion (23% above original guidance). Secondly, management provided an update on several alternative sources of financing for the underground project which appear more attractive compared to an equity issuance, including a potential gold streaming deal. Kunlun Energy announced the sale of its Beijing gas pipeline network to China’s newly formed National Pipeline Company. The transaction valued the assets at 1.9x price to book, above market expectations. Further, the company committed to returning 50% of the net proceeds as a special dividend (equal to a 40% dividend yield).
We initiated a position in CNOOC Ltd, the leading oil exploration and production business in Asia. CNOOC’s share price sold off materially after its parent company was added to the US Entity List which prohibits US persons from acquiring securities in group companies after 11/1/21 (US investors hold < 5% of CNOOC Ltd shares, although account for ~18% free float). CNOOC trades at <10x earnings assuming a spot US$50 Brent oil price, making it one of the cheapest oil stocks globally. The Australian Dollar appreciated in line with commodity price rises, detracting from overall performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Fund-December-2020.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: PMC0002AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.pmcapital.com.au/asian-companies-fund/reports
Reports
Monthly
fund_features:
PM Capital Asian Companies aims to provide long term capital growth and outperform the greater of the S&P/ASX 200 Accumulation Index or the RBA cash rate over rolling seven year periods.
- The Fund is not intended to replicate the index.
- The fund usually consist of 15-35 hand-picked companies within Asia ex-Japan that we believe are trading at prices different to their intrinsic values.
structure: Managed Fund