Market review
Asia Pacific markets performed strongly in the second quarter, with the benchmark rising almost 7%. Performance, however, was not uniform. Taiwan was the strongest market, returning more than 12%, led by Taiwanese semiconductor producer TSMC.
Meanwhile, India’s market was buffeted by its election, which saw Prime Minister Narendra Modi’s BJP party lose its majority, forcing it to assemble a coalition government. The Indian market fell 8% on the day of the results. It soon recovered, but uncertainty remains over whether in coalition Modi will be able to pursue his pro-business agenda with the same energy as previously.
The US economy and Presidential election later this year also loomed large over Asia markets. Expectations that US interest rates will remain higher for longer than was expected just a few months ago put downward pressure on Asia currencies. The potential for tariffs and bans on certain Asia technology providers also weighed on some stocks, along with continuing uncertainty over what the outcome of the US Presidential election will mean for trade with China and other regional economies.
Fund activity
During the second quarter the fund delivered a positive total return but underperformed the benchmark. This was mainly due to underweight positions in consumer staples and energy, in the latter case because controls on geopolitical risk bar the fund from investing in China’s energy sector, which was a strong performer over the quarter.
The fund continued its strongly overweight position in technology. Four of the five biggest positive contributors to performance were technology firms - TSMC, MediaTek, Hon Hai and South Korea’s SK Hynix. The fifth was Power Grid Corporation of India, which delivered strongly despite the volatility in the Indian market.
The most significant detractors from performance were the Indian multinational group Larsen & Toubro, Indian real estate group DFL, Philippine Conglomerates SM Group and South Korea’s Samsung, the one significant exception in the otherwise strong technology sector.
The rising value of TSMC meant the stock persistently hit the fund’s ceiling of a 10% weighting for any single holding, requiring us to trim our holdings. The proceeds of sales of TSMC stock were redistributed in other selected Taiwan technology companies.
We made both disposals and additions in the Chinese market, adding the country’s leading retail pharmaceutical business Yifeng Pharmacy Chain but exiting completely from two Chinese biotechnology groups – Wuxi AppTech and WuXi Biologics. Both of these biotechs are expected to be hit by US legislation aiming to restrict US businesses from working with the two companies. We also exited Australian group Sonic Healthcare after a long stretch of underperformance by the stock.
Outlook
The political settlement in India will be a significant factor in our outlook for the second half of 2024. Modi remains as prime minister, having assembled a coalition government, and while the new administration has been broadly welcomed by Indian business it remains to be seen whether its pro-business policies will remain as strong as ever or whether it will face pressure to increase welfare spending.
The fund has not altered its positions in India, but we are monitoring developments for any significant shift in policy that could merit changes.
Expectations of US rate cuts have diminished since the start of the year. Higher for longer rates in the US have been keeping the dollar at an elevated level against Asia Pacific currencies and reducing returns and the attraction of the region to international investors. The outcome of the US election and the path of rate cuts will therefore be a significant factor for Asia Pacific stocks.
Important Information
The value of investments may fall as well as rise and investors may not get back the amount invested.
Due to the underlying assets held in the WS Canlife Asia Pacific Fund, the price of the fund is classed as having above average to high volatility.
The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice.
This document is issued for information only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available in the literature section.
Promotion approved 22/07/24
