LO Funds
Emerging High Conviction

MACRO AND MARKET REVIEW

Emerging market equities 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, stock markets recorded their worst plunge in decades in the first half of the month. This 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 Emerging Market Index gained 1.34% in USD terms in April, beating the MSCI World Index by 40 bps.

Latin American markets Mexico and Brazil were notable outperformers. Mexico was a standout, with the MSCI Mexico rising 13% in USD terms, based on a combination of attractive valuations and tariff risk that was more than adequately priced in before Liberation Day. Latin American markets did not seem to be a major focus of the Trump administration’s tariff announcements.

In Asia EM, India was the strongest market, seen as a safe haven from tariffs and benefiting from dovish policies from the Reserve Bank of India. It 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 Staples and IT lagged. This market also reflected a divergence between underperforming exporters and domestic plays.

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.

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 (this involved a Xiaomi SU7 electric vehicle and resulted in three fatalities, triggering an investigation into the company's smart driving technology). Xiaomi is an emerging local car OEM with the potential for market share gains. We also took partial profits in Singtel to initiate a position in Sembcorp Industries, a leading energy utility 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 difficult for them to maintain long-term profitability, given capacity relocations and high exposure to the US market.

PERFORMANCE

The LO Funds–Emerging High Conviction Fund slightly underperformed its benchmark in April, mainly due to the Fund’s underweight positions in Korea and Taiwan. Its overweight in China also negatively affected performance. However, strong stock selection in companies riding on new consumption trends in China helped mitigate this effect. Good stock selection in Latin American markets was also a positive contributor.

Mercadolibre was the top contributor in April. Company-specific fundamentals remain strong despite soft macro in Brazil and Mexico, as Mercadolibre continues to execute on all fronts of its e-commerce and fintech business. A strong recovery in Argentina was an added tailwind. The new consumption theme in China and Hong Kong 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.

Both FUTU and CMB detracted from performance in the month, as equity market volatility raised concerns over the stability of client assets under management (AUM), and the pressures on wealth management fees.

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.

Emerging market equities continue to offer outstanding prospects for investing in top-tier companies at reasonable valuations.

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