LO Funds
Asia High Conviction

MACRO AND MARKET REVIEW

Asian stocks experienced a tale of two halves in April. Higher-than-expected reciprocal tariffs announced on Liberation Day (2 April) and their immediate implementation raised concerns about a meaningful trade slowdown and, in a worst-case scenario, a global recession. As a result, the stock markets had the worst plunge in decades in the first half of the month, which was followed by a swift rebound after a policy U-turn and a 90-day exemption for the majority of goods and regions involved. The MSCI Asia ex Japan Index gained 76 bps in USD terms in April, roughly on par with the MSCI World Index, which returned 93 bps during the month. India led the region, rising over 4%, driven by robust corporate earnings and ongoing foreign inflows as it is considered less impacted by tariffs. Korea and Taiwan also rebounded in the second half of the month and closed up 4.5% and 2.4%, respectively, partially helped by currency moves.

China lagged other markets, with exporters significantly underperforming compared to domestic consumption and high-yield sectors. The Politburo meeting on 25 April was the first after the US tariff hikes, providing high-level guidance on future policy stimulus. Leaders pledged to “fully prepare” emergency plans to mitigate external shocks, but downplayed the urgency for large-scale stimulus due to the recent US policy shift. They reiterated intentions to cut interest rates and reserve requirements when appropriate, stabilise the property market, and support businesses hardest hit by tariffs. Despite the lack of concrete stimulus, there was an emphasis on bolstering domestic consumption to enhance overall economic momentum, with potential new fiscal support focused on services.

India emerged as the strongest market, seen as a safe haven from tariffs and benefiting from dovish policies from the Reserve Bank of India. India was also viewed as a beneficiary of the China+1 supply chain. This was supported by continued institutional inflows. The ongoing earnings season slightly exceeded expectations, with improvements in Financials and Industrials, while Consumer Staples and IT lagged. This market also reflected a divergence between underperforming exporters and domestic plays.

The Technology Hardware sector, strongly hit by the tariffs, experienced a V-shaped sentiment shift during the month. Initial fears of deteriorating profitability and end demand due to increased costs were alleviated by the exemption of most electronic products from reciprocal tariffs shortly after Liberation Day, alongside positive discussions on trade negotiations. Additionally, strong earnings reports from major US cloud companies highlighted robust AI spending for the year, resulting in rebounds for Korea and Taiwan in the latter half of the month. We anticipate continued volatility due to uncertainties surrounding semiconductor tariffs and upcoming AI diffusion rules from the Trump administration. Elsewhere in Asia, most ASEAN markets ended the month positively in USD terms, partly due to favourable currency movements.

PORTFOLIO ACTIVITY

Given the drastic stock market movements and the limited visibility expected over the next few months, the Fund made few adjustments in April. We viewed the April 1H correction as an opportunity to reduce our underweight in Taiwan by adding to existing positions, funded by resilient high-yielders in China. The Fund also initiated a position in Xiaomi, believing the valuation is now fair following the correction related to the car accident. Xiaomi is an emerging local car OEM with market share gain potential. Additionally, we took partial profits from Singtel to initiate a position in Sembcorp Industries, a leading energy utilities and urban solutions provider headquartered in Singapore, with more than 50% of its energy portfolio coming from renewable sources across 11 countries. Conversely, we exited Lenovo, as we believe it will be challenging for the company to maintain long-term profitability given capacity relocations and high exposure to the US market.

PERFORMANCE

The LO Funds–Asia High Conviction Fund underperformed its benchmark in April, mainly due to our underweight positions in Taiwan and Korea, while our stock selection in China aided the performance as we avoided pure exporters.

The new consumption theme continued to outperform this month, as it remains self-sufficient and largely independent of global trade tensions. Pop Mart was a significant contributor, reporting another strong quarterly earnings performance, with overseas growth exceeding expectations. Chow Tai Fook delivered better-than-expected operating data for Q1 and indicated that FY25 margins should surpass previous guidance, benefiting from rising gold prices and an increased mix of high-gross-margin products, despite an acceleration in store closures. Singtel also performed well, thanks to its ability to maintain an attractive dividend yield, supported by robust cash flow from its telecom operations and investment gains from strategic asset disposals, allowing it to stand out in an uncertain macroeconomic environment.

On the detractor side, Alibaba experienced a correction alongside other platform plays in China, driven by softened sentiment during the trade war. Both FUTU and CMB also detracted from performance this month, as equity market volatility raised concerns regarding client assets under management (AUM) stability and pressures on wealth management fees. Overall, our overweight position in China relative to our underweights in Korea and Taiwan impacted performance; however, strong stock selection in China helped mitigate this effect.

OUTLOOK

Our view remains unchanged from that of the last few months. The diminishing perception of US exceptionalism is increasingly evident to global investors, especially as constant changes in trade policy, such as drastic reciprocal tariff rates and sudden exemptions, contribute to uncertainty for both supply chains and investors. The fluctuating tariff policy and ongoing trade negotiations led to marked volatility across markets and sectors, likely dampening consumer and enterprise spending until stability returns. Markets are beginning to factor in potential growth limitations from President Trump's domestic policies, prompting capital flows toward diversification, particularly in Asia, where strong growth narratives persist. While volatility is likely to persist for the time being, our strategy remains disciplined, focusing on companies with durable competitive advantages that can deliver sustainable earnings growth across market cycles.

In China, we emphasise domestic consumption, technological innovation, and industrial advancement, particularly for firms expanding their global market presence beyond US connections. High-quality, dividend-yielding stocks that offer attractive returns through consistent payouts and buybacks are also a priority. India presents a complex scenario: while short-term growth has moderated, current valuations reflect these challenges. Its relative insulation from US-China tensions, coupled with robust long-term fundamentals, positions India as both a defensive investment and a growth opportunity. The Asia ex-Japan market continues to offer outstanding prospects for investing in top-tier companies at reasonable prices. Despite anticipated market fluctuations, our focus on high-quality firms with strong cash generation prepares the portfolio to navigate near-term uncertainties while leveraging long-term structural advantages in the region.

Thank you for your continued support.

LOIM Asia Equities team