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MONTHLY REPORT - January 2020 (as of 01/31/2020)
GemEquityInvesting in emerging markets
2019-nCOV : an unprecedented health crisis!
MACRO VIEWBy mid-January, emerging markets have been hit with full force by the Wuhan Coronavirus, which has also affected global financialmarkets. Over the month, emerging markets index dropped 3.4% in €, underperforming the MSCI World index (+0.7% in €), the S&P(+1.2%), and European markets (Stoxx 600 -1.2%). Worth noting the relative strength of Russia which continues to outperform after agood year in 2019. When announcing constitutional changes this month, the Kremlin has revealed an important investment program($65bn for households over the next 4 years and $400bn over 10 years on infrastructure). This expansionary fiscal policy should helpto revive Russian consumption and reaccelerate economic growth.
Regarding coronavirus, the number of infected cases as of February 4th soared to 20,679 of which 20,483 in China and seemsnot yet slowing down. This virus differs from SARS in 2003 on 3 points: itsincubation period is estimated at around 10 days vs. 2-7 days for SARS; itis more infectious but fortunately, with a lower mortality rate (2% vs. 10%).Facing this threat, Beijing has promptly implemented unprecedentedmeasures: extend the Chinese New Year holiday, lock down several citiesstarting with Wuhan, cancel New Year celebrations, restrict travels andpopulation movements, close popular tourist destinations. Taking into accountthe incubation period, one should wait till 8-10 February to assess the efficiencyof the above quarantine measures.
As to the economic impact, we could already make some assumptions. Based oncurrent size of Chinese consumption and its contribution to GDP (58% vs. 35% in2003), current slowdown could be more important compare to SARS. Chinese GDPcould lose between 1 and 1.5 point of growth in the first half depending on whenthe outbreak will peak: in February/March, or in 2Q20. After that, we should expect a relatively strong recovery (restocking, monetary easing, supportive fiscal measures). As such, it is also worth noting that the annualized growth of Chinese industrial inventory was already very low even before the virus outbreak. In the short term, we expect monetary authorities to announce measures of support (lower interest rates, easing in credit conditions). Expansionary fiscal measures could also follow. Such measures should be proportionate to the impact of health crisis and could be announced at next Poliburo meeting in April. As to financial markets, it seems too early to make an assessment. During the 2003 SARS crisis, we followed the new infected cases on a daily basis. As this trend weakened in April 2003, markets recovered. Back then, the Hang Seng Index lost 17% between December and April and subsequently recovered by almost 20% between April and June. History does not repeat itself but it often rhymes. The current virus, despite its lower mortality could last for longer compare to SARS. Therefore, we should remain cautious.
FUND POSITIONNING Since the beginning of December, exposure to China has been gradually decreased, even before the 2019-nCov virus breakout (we cut some of our internet positions, sold Foshan Haitian and China Unicom): 37.5% of exposure in November 2019, 34.6% as of 17 January 2020. Post coronavirus breakout, the fund exposure to China is 35%, of which 8% in A shares (valued as of 23/01/2020). In the short term, our position on CITS, China duty free operator (1% of GemEquity) could be negatively affected. Other than this position, we do not have investment in the most affected sectors such as transport, lodging and restaurants.Elsewhere in Vietnam, our position in Vinamilk had been sold out for Vincom Retail (on better growth prospects over the next 3 years). We have closed our position in Jardine Matheson as its corporate governance continues to disappoint. Also in Asia, we increased our position in SEA Ltd (e-commerce in Indonesia) to 2%. We have also increased our technology exposure from 22.6 to 25.4% (including 10.4% on Korean semiconductor players). In Russia, our overall exposure has been increased from 6.5 to 7.3%and Sberbank accounts for 3.5% of the fund. In Brazil, we adjusted our exposure to financials (6.2% of the portfolio) which now favors IRB and B3 over Itau.GemEquity is now 98% invested (65% in growth stocks and 33% in cyclicals).
FUND PERFORMANCEIn January, GemEquity declined 1.4%, outperforming its index, the MSCI Emerging index (dividends reinvested), that lost 3.4%. Over the month, our overweight Russia and Korea as well as our underweight South Africa, ASEAN markets and Saudi Arabia have made positive contribution to our performance. However, our overweight Brazil and absence from Mexico and Turkey weighted negatively. As for our stock selection, let us highlight the outperformance of technology names such as Samsung Electronics (6.3% of GemEquity), Samsung SDI (1.2%) and Totvs (1.1%). Our internet companies (Tencent, Alibaba, SEA Ltd and Yandex – 19% of the portfolio on a combined basis) have also held up well. On the contrary, our Chinese auto stocks (2.5% of GemEquity) have been particularly affected by the coronavirus and declined almost 17% over the month.
EUROS
1 Year 5 YearsYTD 3 YearsAnnualized
since inception
1 Month
-1.4% +16.7% +46.5%I-share (€) -1.4% +31.7% +8.3%
+15.7% +40.1%R-share (€) -1.5% +28.3% +7.4%-1.5%
+7.5% +27.0%Index (€) -3.4% +22.4% +5.2%-3.4%
+15.4%Category (€) (*) -3.8% +16.0% +3.9%-3.8% +8.8%
DOLLAR
YTD 3 Years1 Year1 Month 5 Years
-2.6% +12.7%I-share ($) +45.5%-2.6% +36.4%
-2.7% +31.5%-2.7% +11.7% +38.3%R-share ($)
+24.5%Index ($) -4.7% +25.5%-4.7% +3.8%
COUNTRY
Em.MktFund34.3%35.0%China
13.7%Korea 11.7%Taiwan 11.7%9.5%India 8.7%6.6%
2.4%ASEAN 7.3%Brazil 7.5%12.9%Mexico 2.3%0.0%
0.0%Argentina, Chile, Colombia & Peru 1.6%7.3%Russia & CIS 3.9%
Eastern Europe 1.6%0.0%0.0%Turkey & Middle East 4.7%1.8%Africa 4.7%
Global Emerging Companies 8.2%2.5%Cash
SECTOR
Em.MktFundEnergy 7.4%3.4%
2.3%Basic Materials 7.4%Industrials 5.3%3.3%Banks 17.6%9.0%
11.2%Other Financials 6.6%0.5%Real Estate 3.0%
Technology 15.7%25.4%13.5%Media & Internet 8.1%3.5%Telecom 4.0%
Consumer Durables 13.0%21.8%6.3%3.6%Consumer Non-durables
0.0%Healthcare Services 2.8%Utilities 2.6%0.0%
2.5%Cash
PERFORMANCE
Source : Gemway Assets, Bloomberg
AUM $824M
GemEquityInvesting in emerging markets
ASSETS BREAKDOWN
CAPITALIZATION
Median Market Capitalization ($Bn) 25,114Total number of holdings 54
REGION
Em.MktFund
Asia 73.6%74.0%
11.4%12.9%LATAM
15.0%9.1%EEMEA
2.5%Cash
Others -1.5%
Thematic Em.MktFund48.4%65.2%Structural Growth51.6%32.4%Cyclicals
10 MAJOR HOLDINGS
10 major holdings Em. MktFund
ChinaAlibaba 5.8%7.8%
7.6% 4.4%Tencent China
Samsung Electronics Korea 6.3% 4.2%
Taiwan 5.0% 4.4%TSMC
4.4% 0.0%ChinaHangzhou Hikvision
Korea 4.0% 0.7%SK Hynix
3.5%RussiaSberbank 0.7%
AIA Global EM Companies 3.0% 0.0%
0.8%China Mobile China 3.0%
3.0%Shenzhou International 0.2%China
21.3%47.6%Total
MAIN CONVICTIONS (BY STOCK)Stock Active Share (Σ of stock overweights ) 68.3%
Positive ConvictionsCountry Fund +/-
ChinaHangzhou Hikvision 4.4% +4.4%+3.3%SK Hynix 4.0%Korea+3.1%ChinaTencent 7.6%
AIA 3.0%Global EM companies +3.0%+2.8%Shenzhou International 3.0%China
Negative ConvictionsFundCountry +/-
-1.3%ChinaChina Construction Bank 0.0%India -1.0%Reliance Industries 0.0%
-0.9%ICBC 0.0%ChinaGazprom 0.0%Russia -0.7%
-0.7%Vale 0.0%Brazil
MAIN CONVICTIONS (COUNTRY/SECTOR)Matrix Active Share (Σ of country/sector overweights) 49.7%
Positive Convictions+/-Fund
11.4%Korean Technology +6.0%China Consumer Durables +4.7%13.9%
4.2% +4.2%Global Em. Companies Consumer Durables11.1%China Communication +4.0%
+3.5%Brazil Financials 6.2%
Negative ConvictionsFund +/-
-3.0%Chinese Financial Services 4.1%0.0%China Property -2.0%0.0%China Industrials -2.0%
-1.9%Taiwan Financial Services 0.0%-1.5%South Africa Financial Services 0.0%
PERFORMANCE ATTRIBUTION YTDOver/under-performance : +2.0% o/w Stock Selection : +1.8% and Country and curreny allocation :+0.3%
Major contributors Major detractorsStocks held
0.21IndonesiaSeaBrazilMagazine Luiza 0.15BrazilIRB Brazil 0.12
Samsung SDI 0.11South KoreaTotvs 0.10Brazil
Stocks not held0.13CCB China
China 0.09ICBCGazprom Russia 0.08
Brazil 0.07Vale0.05IndiaReliance Industries
Stocks heldChinaGuangzhou Auto -0.29
Shenzhou Int. -0.21ChinaBradesco -0.15Brazil
-0.13BrazilItau UnibancoSouth KoreaSK Hynix -0.13
Stocks not heldInfosys -0.04IndiaJD.com -0.03China
-0.02MexicoBanorteRussiaNorilsk Nickel -0.02MexicoAmerica Movil -0.02
STATISTICS (3 YEARS IN €) VALUATION
GemEquity Volatility 14.5%13.7%Index Volatility3.80Tracking Error
1.02Beta+3.1%Alpha1.23Info Ratio0.86Sharpe Ratio
25.62019 PER (X) :19.72020 PER (X) :2.1%Dividend Yield :
2019 EPS growth (e) : 23.3%29.8%2020 EPS growth (e) :
(based on Bloombergconsensus)
ESG CONVICTIONA detailed ESG Investissement semi-annual report (impactreport, carbon footprint, etc.) is available on request or onthe website www.gemway.com.
ESG investment is fully integrated into our investmentprocess through a best in class approach, in particular inorder to reduce the risk of the portfolio.
The carbon footprint or WACI of the portfolio is 160 as ofDecember 2019. This compares with 500 for the market(source: Trucost).
(*): Bloomberg BAIF UCITS OEF EMKT EQ : This index represents the average of emerging market equity funds. GemEquity is UCITS compliant. (***): Risk-free rate used in the Sharpe ratio: 10 years German Bund. The index is the MSCI Emerging Market Index (divident reinvested). GemEquity is primarily investedin equities and presents a risk of capital loss. Past performances do not guarantee future performances. This document, intended for professional investors, is not of a contractual nature. It may not be reproduced, distributed or passed on to third parties in whole or in part without the prior written authorisation ofGemway Assets SAS. The purpose of this document, which is commercial in nature, is to inform investors of the fund’s characteristics in a simplified way. For more information, please refer to the KIID or consult your usual contact. Management fees are included in the performance. In Switzerland, the Fund hasappointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland, Tel: +41 21 311 17 77, email: [email protected]. The Fund’s paying agent is Banque Cantonale de Genève. In respect of the Shares distributed in or from Switzerland, the place of performance andjurisdiction is Lausanne (Switzerland).
Launch date :
July,31st 2012
Legal form :
UCIT-4 FCP under French law
Benchmark :
MSCI Emerging Markets
(net dividends reinvested)
Quote currency :
EUR and USD
NAV 01/31/2020:
187,17€ (I)
174,95€ (R)
154,73$ (I USD)
163,68$ (R USD)
I-Share ISIN : FR0011274984
R-Share ISIN : FR0011268705
I USD-Share ISIN : FR0013082666
R USD-Share ISIN : FR0013082658
I-Share Bloomberg : GWAGEUI FP
R-Share Bloomberg : GWAGEUR FP
Contacts :
Michel Audeban : +33 1 86 95 22 98
Pierre Lorre : +33 1 84 25 62 54
Stefano Franchi : +33 7 70 55 38 06
GEMWAY ASSETS - GemEquity - Monthly report - January 2020
