JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Monthly Report November 2018

Transcription

1 JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Monthly Report November 2018 JOM Silkkitie Asia Equity Investment Fund s NAV was at the end of November so the performance during the month stood at +6.5%. Since fund inception (31st July 2009) the NAV has increased by %, thus the annual performance has been +8.95%. Market volatility continued in November along with the global capital markets. However, at the end of the month the sentiment improved as Fed s Powell indicated that the rate hike cycle maybe nearing its end. The G20 meeting in early December was also deemed positive, as China and the US decided to put further import tolls on hold for 90 days. The declining price of oil, from nearly 70 USD in October to 50 USD in late November, was very positive for many emerging markets that are running current account deficits, such as the Philippines, India and Indonesia. Therefore, many EM currencies have been strengthening against the USD for many weeks now. In addition, market stress seems to have shifted increasingly toward the US as many macro indicators have been deteriorating, valuation levels are historically high while liquidity situation has been tightening - now it seems that the domestic driven EM space is quite attractive given the low valuation and stable growth in many of our focus markets. During the month we increased India s and Indonesia s weights. In addition, as the global growth is now clearly slowing down, we are increasingly focusing on domestic driven structural themes, which are not correlated to global trade cycle. JOM SILKKITIE, NET ASSET VALUE (31 November 2018) Fund size Number of fund units meur kpl Inception date Last month s performance +6.50% Performance since inception % Annualized performance since inception +8.95% Accumulated management fee* 1.11% Accumulated performance fee* 0.00% Accumulated custodian fee* 0.14% Net investment position (prior to subscriptions on ) 96.8% Volatility** 14.4% Portfolio turnover 257.2% Name: JOM Silkkitie Fund (UCITS) Portfolio Manager: Juuso Mykkänen Custodian: SEB. Helsinki branch Benchmark index: No official index Profit sharing: The Fund has only accumulating units Fund rules last confirmed: OVERVIEW OF THE FUND Inception date: ISIN-code: FI Bloomberg-ticker: JOMSILK FH Fund target group: Demanding investors who understand the potential of Asian equity markets in the long run. Minimum subscription: Subscription account: IBAN: FI BIC: ESSEFIHXXXX Management fee: 1.2% p.a. Subscription fee: 1.5% - 0% Redemption fee: 1% (min. 20 ) Performance fee: 10% on the return exceeding the hurdle rate of 5%. (pls see Fund prospectus for details) Pastperformanceis no guaranteeforfuturereturns.the Fundvalue mayincrease or decrease, andtheinvestor mayincurlosses whenredeeming his shares. MSCI AC Asia ex-japan (EUR) is a price index, which takes dividends into account. Further details on JOM Silkkitie Investment Fund may be foundin thekeyinvestorinformation document,fundprospectus andfundrules,which areavailable by requestfromjom Fund ManagementLtd, or on the website *For the fiscal period since , % of fund average net assets. **Based on daily returns during 12 months. Detailed formulasavailablefromthefundmanagement Company.

2 JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Monthly Report November 2018 Jakarta Composite Index JCI Equities by Investment Themes Financial & Property 27 % Hedge 3 % FUND CORRELATION (12M, DAILY) WITH SOME EQUITY INDICES (EUR) Philippine composite Index PCOMP Infra 14 % Green & Clean 5 % Consumers 51 % HK China H shares HSCEI MSCI Asia ex-japan Topix MSCI World S&P 500 Bloomberg Europe 500 Index Indonesia Philippines China Asia Japan World US Europe FUND PERFORMANCE MONTHLY (%) Equities Geographical Break-down Myanmar 3% Vietnam 16 % US 3% India 11 % Philippines 12 % Pakistan 5 % China 29 % Indonesia 21 % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year JOM SILKKITIE NAV VS. THE REGIONAL EQUITY MARKET INDEX % + 40 % % % + 20 % % + 0 % -20 % FUND PERFORMANCE BI-ANNUALLY (%) % % MSCI AC Asia ex-japan (Total return, EUR) JOM Silkkitie % % % % % % % % % % % % % % Pastperformanceis no guaranteeforfuturereturns.the Fundvalue mayincrease or decrease, andtheinvestor mayincurlosses whenredeeming his shares. MSCIACAsiaex-Japan (EUR) isapriceindex, whichtakes dividendsintoaccount. FurtherdetailsonJOM SilkkitieAsiaEquity InvestmentFund maybe foundin thekeyinvestorinformationdocument,fundprospectusandfundrules,whichareavailableby requestfromjomfundmanagement Ltd,or onthewebsitewww.jom.fi.

3 JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Monthly Report November 2018 In Indonesia and the Philippines during November Prior to this visit we were in Jakarta in March. Indonesia s capital had become much cleaner since then, mostly due to the Asian Games that were held in August. There was hardly any rubbish alongside the streets and the city seems to be functioning in a more orderly fashion, especially around the Thamrin and Kuningan areas. What was also notable, there were many more green plantings under the bridges and around infra and roads. Also, the traffic seemed to work quite fluently compared to earlier visits, however, the main reasons for better traffic were that 1. subway is now in the testing phase, thus there are no more subway construction sites blocking the traffic, 2. Odd-even registration plate policy is in action again. All this visible improvement in city s cleanliness, traffic etc. are going to affect positively foreign business-people s and investors decisions when they visit the Indonesian capital. What comes to infra completion, there will be two times more toll-roads completed in just than in the last 20 years combined thus, the infra push will increasingly be reflected in the country s productivity figures in the coming years. Also, many of the companies we met highlighted how they will be benefitting fromthe improved infra and connectivity, going forward. The companies we met were relatively positive, give or take some variation depending on the sector they operate in: the outlook for the banks were the most stable, as for the time being they did not see any meaningful negative effect arising from the BI s rate hikes, because the loan growth cycle has only recently started to climb up from the multi-year bottom. Meanwhile, the companies operating in the rapidly growing digitization business were extremely positive, as the underlying structural growth cannot be slowed down by economic cycles nor rate hikes. In addition, as Indonesia, with its 265m people, has emerged as a testing ground for several new mobile/digital/disruption -apps/technologies, many companies operating in the arena want to execute their expansion plans in rapid and flaunty manner the growth is hugely visible! Above: Logistics costs will inevitable decline in Indonesia as infra is being improved.

4 JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Below: Loan growth cycle has re-emerged in Indonesia after reaching a multi year bottom. The loan growth cycle has been one of the missing links in the economy. In October the loan growth was % YoY, while during the last upcycle loans were growing at +20% YoY. Monthly Report November 2018 As the IDR has in recent years weakened against the USD, many companies have increasingly been forced to trim down their costs, in order to maintain satisfactory margin levels. This was visible in Komodo s portfolio company Arwana Citra (ARNA), which produces building materials; ARNA has managed to cut its energy and material costs as they have focused on improving their line operations. The most negative factor mentioned by the companies was the soft private consumption, especially in the big ticket items such as houses and cars. The main reason for this cautiousness was due to the ongoing tax reform, as the government is increasingly monitoring people s consumption habits and comparing that to their reported income and wealth. Thus, if you buy an expensive house or a car, not corresponding to your reported income, the tax officials may well pay you a visit. Therefore, changing people s attitudes to pay taxes will take some time, and it is very difficult to estimate for how long the consumer cautiousness will continue. Indonesia s collected tax/gdp ratio is only around 10% currently, which is a very low figure in the Asian context. The government s medium term target is to increase the ratio up toward a level of 14-15%. Right: In Asia the export to GDP ratio varies a lot from one country to another. Economies that are mostly driven by strong domestic factors, such as Indonesia, the Philippines, India and Pakistan, are considered more stable when the global economy slows down. However, they also may have current account deficits, which sometimes pressure their currencies downwards. On surface, Vietnam seems to be the most vulnerable country in a global downturn, but as the country focuses largely on low-valued manufactured goods, Vietnam s vulnerability is less considerable than that of Korea s or Taiwan s, as the latter two manufacture high-end goods. In addition, Vietnam is also strongly growing via structural growth drivers. Source: CLSA

5 The Philippines JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Monthly Report November 2018 We visited the country s two largest cities, Cebu and Manila. We ve previously visited Cebu only once, which was some 16 months ago during the summer of This time it was very clear that the city is growing rapidly, as its skyline had changed tremendously, now having a much bigger city feel to it with a plethora high-rise buildings and construction cranes. Our portfolio company, Cebu Landmasters' (CLI) comments were also reflecting that growth is continuing in the Visayas area where where the company is headquartered, as well as in the Mindanao-area. CLI s 9m/2018 net income increased by 27% YoY and the full year result growth should even be slightly better. PE for 2018 is only 4x, P/NAV discount is 75%, CLI is also buying back its own shares and paying a 3.5% dividend. We also visited MCIA (Mactan Cebu International Airport) new terminal-2, which had started to operate in July T-2 is dedicated solely for international flights, whereas the older T-1 is for domestic flights. The Silkkitie portfolio holding Megawide has constructed the T-2 and has a concession to operate MCIA for 25 years. With the new T-2, Cebu and the surrounding areas are set for further acceleration of tourism growth. In the Mactan island where airport is located, there are numerous new holiday resorts and hotels under construction, and the rumor has it that Cebu may in the near future have direct flights also from Europe, complementing the current selection of routes from various Asian cities. In Manila, we met companies from a number of sectors, such as property, consumption, manufacturing industry, as well as some large conglomerates, operating in various areas of the economy. Surprisingly, the most positive message was coming from the property developers, as even in the high-end properties, demand has been very robust in most of Manila s business centers such as Makati and Bonifacio Global City. The prices per square meter can be as high as 10kEUR, but on average they tend to be around 3-4kEUR per square meter. Foreign, especially the Chinese buyers, have been active in the high-end segment. Apparently, the structural growth in the mid-end segment is still very robust, despite the interest rates having been hiked due to the inflationary pressures arising mainly from the higher oil price. Above: MCIA T-2 was a state of the art type of terminal, with all the best and latest airport tech devices (security check, conveyor belt etc.) that will definitely have a positive effect on the visitors. However, a bit of a negative impression was created by the standard gap between the visibly quite poor older terminal T-1 as compared to the new T-2. In addition, as the Philippines have been running a current account deficit, putting pressure on the peso, the domestic consumption outside of property has been softer in 2018 (auto sales, for example). Nevertheless, the country s midlle income class is set to grow for much longer an argument bought also by Ikea as the Swedish furniture giant is building the world s largest Ikea-store with SM Group in Manila s Pasay City. SM Group is also operating one of the largest malls, Mall of Asia, in the same location.

6 JOM SILKKITIE ASIA EQUITY INVESTMENT FUND Monthly Report November 2018 USD-PHP 3yr Above: The PHP has declined vs the USD over the last three years, as the current account has turned negative due to strong domestic demand. However, the PHP has recently gained somewhat, along with the other EM currencies. Source: Bloomberg Above: The Cebu skyline is changing rapidly as the building boom continues, and the city is attracting more tourists and businesses.

7 JOM KOMODO INDONESIA EQUITY INVESTMENT FUND Monthly Report November 2018 JOM Komodo Indonesia Equity Investment Fund s NAV was at the end of November, as it increased by 13.25% during the month. Since fund inception (15 th May 2012) the NAV has increased by %, thus the annual performance has been +7.15%. The Indonesian capital markets started to attract increasingly foreign investors in November: foreign inflow to equities was +600mUSD while inflow to government bonds was +2.1bnUSD. We think there are two clear reasons for foreign inflows: 1. external factors such as decline in the price of oil, US Fed s rate hike slowdown and possible USD weakness, and market stress shift more toward US capital markets. 2. Clear signs of growth in Indonesian domestic economic cycle such as bank loans, property and investment cycle. Also infra improvements are now starting slowly to bear fruit in various economic sectors. Indonesia s large domestic driven economy and its low correlation to global trade cycle are also positive factors for many global investors. This is now increasingly important as during last few years, when global trade cycle was running strongly, global investment flows were flowing toward beneficiaries of strong trade cycle and especially toward tech sector while at the same time money was increasingly flowing out from many Asia s domestic driven themes (despite their healthy growth and profits), thus making these sectors trading at very cheap valuation levels. Therefore we think that now as global trade cycle slowing, investment flows start to seek for themes and stocks that are structurally growing. So, currently we see situation rather attractive for Indonesia assets as long as there is not globally any credit event similar magnitude of During the month we increased weights of stocks that operate only in domestic driven themes, and that are trading at multi-year low valuation levels JOM KOMODO, NET ASSET VALUE (30 November 2018) Size of the fund meur Number of fund units Inception date Last month s performance % Performance since inception % Annualised performance since inception +7.15% Accumulated management fee* 1.38% Accumulated performance fee* 0.00% Accumulated custodian fee* 0.24% Net investment position (prior to subscriptions on ) 97.9% Volatility** 16.3% Portfolio turnover % Fund s correlation to JCI-Index (12m) 0.69 Name: JOM Komodo Fund (UCITS) Portfolio Manager: Juuso Mykkänen Custodian: SEB. Helsinki branch Benchmark index: No official index Profit sharing: The Fund has only accumulating units Fund rules last confirmed: FUND OVERVIEW Inception date: ISIN-code: FI Fund target group: Demanding investors who understand the potential of Asian equity markets in the long run. Minimum subscription: Subscription account: IBAN: FI BIC: ESSEFIHXXX Management fee: 1.5% p.a. Subscription fee: 1.5% - 0% Redemption fee: 2% (min. 20 ) Performance fee: 10% on the return exceeding the hurdle rate of 5%. (pls see Fund prospectus for details) Past performance is no guarantee for future returns. The Fund value may increase or decrease, and the investor may incur losses when redeeming his shares. Jakarta Composite Index (EUR) and MV Indonesia SmallCap Index (EUR) are price indices, which take dividends into account. Further details on JOM Komodo Investment Fund may be found in the key investor information document, fund prospectus and fund rules, which areavailable by request from JOM Fund Management Ltd, or on the website *For the fiscal period since , % of fund average netassets. **Will be calculated based on daily returns during 12 months. after the fund has sufficient track history. Detailed formulas availablefrom the Fund Management Company.

8 JOM KOMODO INDONESIA EQUITY INVESTMENT FUND Monthly Report November 2018 Equities by Investment Themes Basic Materials 15% Technology 3% Industrial 20% FUND PERFORMANCE MONTHLY (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year Consumer, Cyclical 30% Communications 5% Financial 22% Consumer, Noncyclical 5% Inflation and interest rates in Indonesia today JOM KOMODO NAV VS. INDONESIA EQUITY INDICES Inflation Interest rate Above: BI (Bank Indonesia) surprised markets by lifting interest rates by 25bps to 6% level on 15th November. Capital market reaction to this move was very positive. Source: Bloomberg. JAKARTA COMPOSITE Index (EUR) S&P Indonesia SmallCap Price (EUR) JOM Komodo Past performance is no guarantee for future returns. The Fund value may increase or decrease, and the investor may incur losses when redeeming his shares. Jakarta Composite Index (EUR) and MV Indonesia SmallCap Index (EUR) are price indices, which take dividends into account. Further details on JOM Komodo Investment Fund may be found in the key investor information document, fund prospectus and fund rules, which areavailable by request from JOM Fund Management Ltd, or on the website *For the fiscal period since , % of fund average netassets. **Will be calculated based on daily returns during 12 months. after the fund has sufficient track history. Detailed formulas availablefrom the Fund Management Company.