The Astra group and Alquity have been working together for many years. Alquity specialize in managing money in Emerging markets [EM] and Astra having been using these funds for a number of years.
2018 has been a very challenging year for EM and the Alquity funds have suffered along with the majority of these funds.
The recent conference call is to help investors and companies like Astra understand the opportunities and the problems going forward.
Alquity provided their collective view on the latest development in the trade war between the US and China. President Trump and Xi recently met in Argentina during the G20 Summit and agreed to pause from imposing tariffs. Alquity’s takeaway from the truce, is that it will not lessen the volatility of the markets, but is enough to limit the downside risks to asset prices specially in the emerging markets. China’s recent Purchasing Manager’s Index [PMI] data implies solid growth spurred by the domestic economy. The team’s conviction in China is even higher after their due diligence with the local companies and will be increasing the allocation to China in its funds.
The substantial drop in oil prices improved the macro‐economic outlook. India’s Real Gross domestic product [GDP] growth hit 7.1% year‐on‐year in Q3 boosted by structural domestic growth. The April election in India is key and may provide market volatility in Q1 next year. During the trip Alquity visited 8 sites and conducted 33 meetings, it confirmed their positive view on the local market and strengthened their belief that the market and the shares they hold represent great value. Investment confidence is increasing due to an accelerating rural economy, rising corporate margins, and re‐emergence of private sector capex cycle. Alquity is extremely positive on India as the economy is firm and they believe this market will do very well in the medium term.
Thailand and Malaysia’s GDP growth slowed in Q3 while Vietnam’s GDP may further strengthen due to its consistently strong manufacturing PMI. Alquity is also looking at Indonesia as a potential wildcard for 2019 as they see growth in bank lending activities. Overall, Alquity Asia Fund’s allocation is concentrated in China and India with 34.7% and 31.5% respectively, the third largest allocation is in Vietnam with 7.3% of the fund and the rest are evenly distributed in other Asean countries.
Outlook for 2019
Alquity is particularly bullish in India and China as they see cheap share valuations and robust local economies. The latest comment of the US Fed to potentially reduce its rate hikes next year will support the global market sentiment and will be favourable for emerging markets. Moreover, Alquity reiterated that the drop in oil prices will ease inflationary pressure thereby sustain the economic growth in Asian markets. Lastly, Alquity will closely monitor upcoming election results and market development next year which may impact their holdings in the region.