World stock markets remained highly turbulent in February. Global macroeconomic factors, such as the outlook for US interest rates, oil prices and developments in China caused the market to fall sharply early in the month, before then recovering towards the end.
The Carnegie Asia fund fell in the period by 2.0 percent.
Most Asian countries, and in particular India, benefit from lower oil prices. One problem, however, is that low oil prices are seen as an indicator of slower global growth. This is a downside because many Asian economies are driven by exports.
Valuations are generally not high, but rather unusually low. Profit growth for a number of the fund’s holdings is remarkably good. The weak stock markets do not feel justified from a company perspective. In an analysis of the valuation of Asian companies from a historical perspective, we found they have not been this low over the past twenty years, except on two occasions.
The valuation is level with the situation during the global financial crisis of 2008 – 2009. During the Asian crisis of 1997 – 1998, the valuation was slightly lower. The valuation for Asia as a whole (excluding Japan) is ten times annual earnings and 1.1 times book value. China has the lowest valuation, at 6 times annual earnings and 0.7 times book value. Asian economies are generally in a much better position today than during the Asian crisis in 1997. Their economies are in better shape and have higher current account surpluses and larger foreign exchange reserves than twenty years ago. Most companies are far better managed, with more stable balance sheets, and they have better profitability and earnings growth.
During the month, investments in Thailand were upped through a purchase in hotel chain Central Plaza Hotel. New investments were also made in China Resources Land and China Construction Bank. In Indonesia we bought construction company Waskita Karya, which is active in infrastructure. The holdings in ICBC, CK Hutchison and Cathay Financial Holding were divested. In India, the holding in HDFC Corp was sold.