An update from our investment manager, Hugh Young - 14 December 2020
What a year it’s been! From the lows in March when economies were being ravaged by Covid-19 and it looked like we were staring into the abyss, stock markets have staged a pretty remarkable recovery, supported by decisive action by governments and Central Banks across the world. As we write, the net asset value of the Trust is up by around 4% to the end of November 2020. But this number masks a huge discrepancy in performance across sectors, and we are in no doubt that the impact of the pandemic will be felt by businesses for years to come. Technology has been a clear beneficiary. Amid lockdowns and social distancing, more people are working from home and staying indoors. This has accelerated demand for online payment systems, e-commerce, digital services and cloud solutions. In contrast, several consumer sectors have felt the impact of restrictions to free movement, with hotels, retailers, auto makers and other discretionary segments bearing the brunt. Banks have also suffered disproportionately on expectations of slowing growth and rising non-performing loans.
We have been cautious about the near-term outlook for global markets, given the apparent disconnect between equity prices and economic and corporate fundamentals. Yet the arrival of vaccines and the festive season have given us more reason to feel cheerful. Whilst the economic outlook for several markets remains uncertain and the geopolitical backdrop a worry, we are likely to witness a sharp rebound in activity across Asia, and consequently earnings. Indeed in many countries, particularly in North Asia, life is largely back to normal and GDP growth resilient, which bodes well. Asia remains well-positioned for global growth with good potential for wealth creation over the coming decades. Whilst tensions between the US and China are unlikely to go away, irrespective of a Biden win, Asia is still hitched to structural growth themes that will be very hard to unwind.
In the midst of all this, smaller companies in the region have not featured as prominently as recipients of investment flows, meaning valuations remain attractive. Our focus continues to be on good quality companies that aim to weather the current storm. We feel comfortable with our holdings given their healthy balance sheets, visible revenue streams and defensible business models. And we’ll continue to look for emerging winners across a number of fields, old and new, in what must surely be the most exciting region globally for stock-pickers like ourselves.
