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Asianmarketsretreat–Ourview

Asianmarketsretreat–GuinnessAtkinsonview

ByEdmundHarriss,

InvestmentDirectorandPortfolioManager,GuinnessAtkinsonAssetManagement

Aftersuchastrongrunthisyearinstockmarketsaroundtheworld,investorsareconcernedthatsomethingnastyisabouttohappen.Unlessthereisastrongviewaboutthedollar,interestrates,oraglobalpriceshockthenthequestioncomesdowntovaluation.Havemarketsbecometooexpensiveandthereforeshouldweretreatalittlebeforeyearend?

Tome,thislookslikeabroadermoveinsentimenttocutbackonpositionsthathavedonewell,i.e.aquestionofvaluationandprofit-taking.Thisdoesnotappeartobebecauseofanyfundamentalchangetomarketearningsoreconomicconditions.

WethinkthatAsianmarketsnevergotexpensive.Valuationshavecomeupfrommulti-yearlows(whichalsodepressesthe10-yearaverage,makingthatcomparisonlowerthanitmightotherwisebe)andaresupportedbystrongearningsgrowthforecastswhichinturnaresupportedbystrongprofitgrowthalreadyreported.

WhatfollowsisaquickreviewofwhatIthinkisrelevant:

Markets:

1. Thestockssellingofftoday4%ormoreinourportfoliosincludeCatcher,Largan,AACTec(smartphones),PingAn(Chineseinsurance),GeelyAuto(Chinesecarmaker),StShineOptical(TaiwanHealthcare),Haitian(Chinesemachinerymaker),AnhuiConchCement(Chinesecementmaker).Thosesellingdown2%-3%:HanonSystems(KoreaAutoparts),Chinesebanks,DeltaElectronicsThailand(powersystemsforTechhardware).Thisisabroadrangeofsectorswithnocommonthemerunningthroughotherthantheyareinmarkets(China)orsectors(Technology)orarestockspecificwhichhavealldonewellthisyear-up50%ormore.


2. ReportedearningsgrowthinAsiaisstillaccelerating

Source:Bloombergdata,GuinnessAtkinsoncalculations.DatathroughtoNovember30,2017.

3. ForecastearningsgrowthinAsiaisalsorisingstrongly–thedipintheredlineisadatadistortioninSept/Oct,correctedinNovember,relatingtoSamsungElectronics.Takeoutthat2-monthdataerrorandrevisionsforboththisyearandnextarestillaccelerating.

Source:Bloombergdata,GuinnessAtkinsoncalculation.DatathroughtoNovember30,2017


4. ThemarketPEvaluationhasbeenrisingsincethelatterpartof2016.Itnevergotexpensivecomparedtoits10-yearaverageandrecentweaknessispullingitbacktowardaverage.

Source:Bloombergdata,GuinnessAtkinsoncalculations

Macroview:

1. Atthehighlevel,therearenoconcernsbeingexpressedaboutGDPgrowth.Chinaisexpectedtoslowdownfrom6.8%toward6.5%asfinancialsectorreformscontinueanddeleveragingprogresses.Themarketsappearcomfortablewiththisandwehaveseennosurprisesinretail,industrialoutput,investmentorinflationdata.

2. Atasectorlevel,theconcernhasbeenraisedthatthecyclehaspeakedandthathighercomponentpricesmeanthateitherdemandwillreduceorthatpricesmustfall.SomeanalystsareforecastingthatQ12018willseethepeakiniPhonesalesgrowthalthoughthevolumesarestilllikelytoremainhigh.

3. SomeanalystshavealsowarnedthatcarsalesgrowthinChinawilllosemomentuminthecomingmonths.GuangzhouAuto(notheld)reportedweakersalestodayandsomeinvestorsarereadingacross.ButthiscompanyproducesandsellsHondacarsandunlessinvestorswerealreadynervous,theimpactofthisnewswouldnormallybeslight.

4. LookingacrosstheeconomiesofKorea,Taiwan,Singapore,Thailand,andAustraliaweseenochangestoconditionsfrom6monthsago.TheoutlookforUSinterestrateshasnotchangedandneitherhastheoutlookforthedollarvsregionalcurrencies.

Ourviewinsum:

Aftersuchastrongrunthisyearinstockmarketsaroundtheworld,investorsareconcernedthatsomethingnastyisabouttohappen.Unlessthereisastrongviewaboutthedollar,interestratesoraglobalpriceshockthenthequestioncomesdowntovaluation.Havemarketsbecometooexpensiveandthereforeshouldweretreatalittlebeforeyearend?


WethinkthatAsianmarketsnevergotexpensive.Valuationshavecomeupfrommulti-yearlows(whichalsodepressesthe10-yearaverage,makingthatcomparisonlowerthanitmightotherwisebe)andaresupportedbystrongearningsgrowthforecastswhichinturnaresupportedbystrongprofitgrowthalreadyreported.

Onthatbasis,marketweaknesslookslikeabuyingopportunityandinthefaceofweaksentimentweshallberebalancingourstockpositionsintothatweakness.

December6,2017

Opinionsexpressedaresubjecttochange,arenotguaranteedandshouldnotbeconsideredinvestmentadvice.

TheFund’sinvestmentobjectives,risks,chargesandexpensesmustbeconsideredcarefullybeforeinvesting.Theprospectusandsummaryprospectuscontainsthisandotherimportantinformationabouttheinvestmentcompany,anditmaybeobtainedbycalling800.951.6566orvisitingwww.gafunds.com.Readitcarefullybeforeinvesting.

Mutualfundinvestinginvolvesriskandlossofprincipalispossible.Investmentsinforeignsecuritiesinvolvegreatervolatility,political,economicandcurrencyrisksanddifferencesinaccountingmethods.Theserisksaregreaterforemergingmarketscountries.TheFundalsoinvestsinmediumandsmallercompanies,whichwillinvolveadditionalriskssuchaslimitedliquidityandgreatervolatility.TheFundmayinvestinderivativeswhichinvolvesrisksdifferentfrom,andincertaincases,greaterthantheriskspresentedbytraditionalinvestments.

MSCIACPacificEx-JapanIndexisamarketcapitalizationweightedindexthatmonitorstheperformanceofstocksfromthePacificregion,excludingJapanconsistingofAustralia,China,HongKong,Indonesia,Korea,Malaysia,NewZealand,Philippines,Singapore,Taiwan,andThailand.

OnecannotinvestdirectlyinanIndex.

Price/EarningsRatio(P/E)isanequityvaluationmultiple.Itisdefinedasmarketpricepersharedividedbyannualearningspershare.

1SDmeans1StandardDeviationwhichisameasure expressingthedegreeofvariationaroundthemean(i.e.byhowspreadoutthenumbersinagrouparefromtheaverage).


ASIA PACIFIC DIVIDEND BUILDER FUND Top 10 HOLDINGS (as of 10/31/2017)

1. Li & Fung Ltd 3.25%

2. Luk Fook Holdings International Ltd 3.10%

3. Relo Holdings Inc 3.09%

4. LPN Development PCL /Foreign - NVDR 3.06%

5. Hanon Systems 3.02%

6. Largan Precision Co Ltd 3.00%

7. Yangzijiang Shipbuilding Holdings Ltd 2.93%

8. Catcher Technology Co Ltd 2.90%

9. DBS Group Holdings 2.83%

10. St Shine Optical Co Ltd 2.81%

ASIA FOCUS FUND Top 10 HOLDINGS (as of 10/31/2017)

1. Sino Biopharmaceutical Ltd 3.64%

2. Geely Automobile Holdings Ltd 3.56%

3. Tencent Holdings Ltd 3.50%

4. Samsung Electronics Co Ltd 3.49%

5. Largan Precision Co Ltd 3.47%

6. Hanon Systems 3.41%

7. Relo Holdings Inc 3.40%

8. Anhui Conch Cement Co Ltd - H Shares 3.23%

9. St Shine Optical Co Ltd 3.20%

10. DBS Group Holdings 3.18%

Fundholdingsandsectorallocationsaresubjecttochangeandarenotrecommendationstobuyorsellanysecurity.

DistributedbyForesideFundServices,LLC

Download - Asian markets retreat – Our view - Guinness Atkinson Funds€¦ · · 2017-12-12Asian markets retreat – Our view ... Those selling down 2%-3%: Hanon Systems (Korea Autoparts),

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