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Environmental issues a priority in China

After the party congress in China in October, which contributed to the market upturn last month, the flow of good news slowed.

The report season in China was very strong and several companies presented surprisingly good results. Alibaba’s profits rose by 60% and Tencent bumped profits by 45%, driven by higher revenues from mobile online games and advertising revenues.

The Chinese government instead tightened up the credit market, which led to higher bond rates. New regulations in real estate and for equity investments by the Chinese on the Hong Kong stock exchange also recently sent negative signals. In the absence of news, the Indian market was also flat in November.  We will find out in mid-December whether or not BJP and Prime Minister Narendra Modi will maintain power in the state of Gujarat after the election. This will control developments in the short term.

Asia reduced its exposure to tech firms in China and Taiwan during the month. In the wake of a strong upturn during the year, we find that several companies have been overvalued. In the meantime, the market is nervous that sales of Apple’s new smart phone models will fall short. The fund’s holdings in Alibaba Group, Tencent Holdings and Sunny Optical were therefore reduced.

In Taiwan, the holding in Hon Hai was sold. Carnegie Asia instead bought Chroma ATE, which manufactures test equipment for the semiconductor industry. The fund also invested in another manufacturer of equipment for the semiconductor industry, ASM Pacific.  A new investment was also made in Sunny Friend Environment. The company operates industrial waste management facilities in Taiwan and China. After the party congress, environmental issues have been made a priority in China.

All holdings in Astra International and Ultratech Cement were sold. In India, we invested in PC Jeweller, a manufacturer of gold and gemstone jewellery sold through its own retail chain. In Thailand, the fund bought Central Plaza Hotel, which operates in the hospitality sector.

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