PERFORMANCE COMMENT
Asian equities posted modest gains in December, with the MSCI Asia ex Japan Index rising by 0.15% in USD terms, outperforming the MSCI World Index by over 3%. Performance across the region was mixed. Taiwan outperformed, gaining 4.3%, driven by continued strength in the technology sector, particularly AI-related semiconductors. China also delivered a solid return of 2.8%, supported by high-dividend-yielding stocks and optimism around state-owned enterprise (SOE) reforms. In contrast, South Korea was the region’s worst performer, falling 7.5% in December. Political turmoil following President Yoon’s sudden declaration of martial law and subsequent impeachment rattled investor confidence. Indonesia also declined, with the market falling 4.2% as currency weakness and capital outflows weighed on sentiment.
The LO Funds–Asia High Conviction Fund outperformed its benchmark during the month. Strong stock selection in Taiwan and an underweight position in South Korea contributed positively to performance. The Fund concluded 2024 with a clear outperformance relative to its benchmark.
MACRO REVIEW
China’s macroeconomic data for November highlighted the uneven nature of its recovery. Retail sales grew 3.0% yoy, a sequential deceleration, reflecting weakening domestic demand following strong sequential gains in October and September. A breakdown of FAI data showed continued strength in manufacturing investment but persistent weakness in real estate. Merchandise exports also declined sequentially. In addition, investor sentiment was shaped by the outcomes of the Central Economic Work Conference, which fell short of market expectations. On the geopolitical front, the US expanded chip export controls, adding 140 Chinese entities to its Entity List and initiating a new Section 301 investigation into China’s legacy node chips. While offshore investors expressed caution, onshore sentiment was relatively optimistic, with many hopeful for improved US-China relations in 2025. High-dividend-yielding stocks attracted robust inflows, supported by life insurers and asset allocators seeking returns in a low-yield environment. Additionally, updated SOE reform guidance from the State-owned Assets Supervision and Administration Commission bolstered confidence in long-term value creation.
South Korea’s President Yoon shocked the country by declaring martial law on the night of 2 December. While the capital market was initially spooked and confused by the reasons Yoon gave for this drastic measure, the martial law was rather short-lived and was lifted in a matter of hours as the opposition party, which has the majority in parliament, swiftly voted against it. Yoon was impeached in subsequent weeks. He is now facing the possibility of being arrested and charged while the Constitutional Court weighs the decision to formally remove him from office and call for an early presidential election. The broader economy and company earnings are unlikely to be affected in the near term, with exporters likely to do relatively better than domestic-oriented companies due to the weaker currency. The government is planning to front-load 75% of its budget spending for 2025 in 1H25 to limit the downside macroeconomic risks from weaker consumer sentiment as a result of the limbo in the current administration.
In India, The RBI revised its FY25 GDP growth projections lower to 6.6% (from 7.2%), citing weak corporate tax collections and softer auto registrations. October Industrial Production rose 3.5% YoY, recovering sequentially for the second month, driven by broad-based growth in mining, electricity and manufacturing. Inflation eased to 5.5% YoY in November (from 6.2% in October), led by a sharp decline in food prices, particularly vegetables. The RBI expects further moderation as harvest supplies increase. While the long-term structural growth outlook remains intact, the near-term macro outlook is mixed, with easing inflation providing relief and improving government capex spending as positives, but growth concerns persist amid weaker private consumption and corporate earnings.
PORTFOLIO ACTIVITY
During the month, the Fund made minor adjustments to its holdings, taking profits from some outperformers and reallocating to stocks with more attractive risk-reward profiles. In Taiwan, we exited Chroma as elevated expectations for 2025 and potential downside from its metrology business presented risks. We initiated a position in Asmedia, a Taiwanese IC design company poised for business recovery in 2025, supported by market share gains and a new server business line.
TOP PERFORMANCE CONTRIBUTORS/DETRACTORS
Alchip, Mediatek and CRRC were the top performers in December. Alchip rallied on news that it had won the N3 AI ASIC project from a major US CSP customer, which will bolster its long-term growth outlook from 2026. MediaTek outperformed in the month as China announced a new trade-in programme for handset devices and market sentiment improved around the company's foray into custom AI chips. CRRC announced another round of strong contract wins that will contribute to its improving earnings growth outlook in 2025 and beyond, supporting the SOE’s ability to raise its dividend payout, which will be seen as attractive in a low-bond-yield environment in China.
CPAll, Power Grid and Meituan were the top detractors in December. CPAll was weak in the month despite robust convenience store and supermarket sales, as its subsidiary, CPAxtra, announced a USD 234 mn investment in a mall and office project. The decline in CPAll’s share price on the back of this investment is overdone as higher interest expense from the loan taken by CPAxtra is estimated to impact CPAll’s earnings by 1%. We expect the strong tourism numbers and the rollout measures to support domestic consumption to continue driving CPAll’s robust sales growth in 2025. Power Grid and Meituan both underperformed without any company-specific fundamental negatives but faced selling pressure after being well-owned by investors in their respective markets. Meituan’s weakness was further exacerbated by weaker confidence in the pace of China’s consumption recovery, following the CEWC meeting, which fell short of market expectations.
As we head into 2025, uncertainties over Trump’s trade policies and the impact on emerging market equities will continue to linger. While we expect more volatility ahead for Asian equities, our strategy remains highly disciplined in picking the best companies that can deliver sustainable, long-term earnings growth. We will look to take advantage of any pullbacks to add to our conviction. In China, we remain invested in leading technology platform companies poised to benefit from resilient domestic consumption and global market-share gains. We also focus on high-dividend-yielding stocks that deliver attractive total returns through dividends and buybacks. In India, despite near-term challenges, the long-term growth runway remains intact. Valuations have partially factored in the slowdown, and India may prove more defensive amid heightened US-China trade tensions under Trump’s administration. In ASEAN, we are also invested in companies in the Utilities and Consumer Staples sectors that are mainly domestic consumption-driven and delivering stable earnings growth. Taiwan’s technology sector remains a good proxy for US technology and presents rich alpha-generating opportunities, especially among the midcap technology companies. The long-term outlook for emerging market equities is still highly positive, and it remains a compelling asset class for investing in high-quality growth, best-in-class companies at reasonable valuations.
Thank you for your continued support.
LOIM Asia Equities team