The fund appreciated 5% in November, as our European and Asian companies rebounded from depressed levels. The MSCI World
Index only appreciated 0.9% by comparison in AUD as the rising Australian dollar offset the improving equity market. Fortunately, our
currency hedges offset this impact as we have a significantly lower exposure to the US dollar than the index. Our fund is now generating
a positive return this calendar year, in our first calendar year of operation. This compares to the US S&P 500 which is down 15%, the
Nasdaq composite down 26% and the MSCI World Index in AUD, which is down 9%. We are also pleased to see our 1 year return of
+2%, well ahead of global equity indexes.
Our largest contributors to the fund this month were Learning Technology Group, Baidu and Alibaba. Our biggest detractors were
Pagseguro, Global Payments and PT Media Nusantara. Global politics and economic data played a big role in equity returns this month.
In Europe, warmer weather calmed nerves about gas shortages this winter, and strong results from many companies, including our
portfolio companies Learning Technology group and Siemens, drove a rebound in equity markets.
In Asia, President Biden and Xi Jinping met in Bali and calmed investors’ nerves around US and China animosity. Berkshire Hathaway
announced an investment in Taiwan Semiconductor Manufacturing Company, signalling that Warren Buffett doesn’t expect a war about
Taiwan and that companies in the region are now presenting significant opportunities for patient investors. We were like a kid in a candy
store buying shares in some of our old favourites including Baidu and Netease at valuations that we haven’t seen in twenty years. Hong
Kong’s Hang Seng index rebounded 26% this month from the 15% decline in the previous month. We still expect more upside in the
companies we own as the market is still down 20% this year. As China slowly moves away from its zero covid policy and increases the
vaccination rate of those aged over 60, which currently is only at 69%, we expect Hong Kong’s equity market to continue to recover. We
currently have 13% of the portfolio invested in companies listed in Hong Kong.
Baidu has been a volatile stock to say the least. The share price has been moving with the Hang Seng Index and many shareholders
were getting despondent at the lows one month ago. We have traded this stock well this year and bought back into the company close
to the lows this month. We all know that volatility in a company’s share price often doesn’t reflect what is actually going on in the underlying
business and this is the case with Baidu. I have been following the company since it listed, 17 years ago. The outlook for the company’s
earnings growth is stronger than it has been in the past five years. They have successfully been investing to build out leading technology
platforms for autonomous driving cars and artificial intelligence (AI) cloud software, whilst running China’s leading search engine. Baidu’s
third quarter results announced this month reflect the strength of these new technology businesses, whilst the search engine has been
impacted by weak advertising expenditure in China due to the continuing impacts of their zero covid policy, which we expect to come to
an end in the next six to twelve months. In the third quarter the AI cloud business and autonomous driving cars business grew revenues
by 25%. This contributed to a 14% increase in earnings. What is little know outside China is the strong growth of robo-taxis in China.
Baidu’s Apollo Go is the largest autonomous ride hailing service provider globally. Apollo Go provided more than 474,000 rides in the
third quarter alone, up 311% year on year and covering ten cities. Their AI Cloud smart transportation solutions have been adopted by
63 cities, up from 24 cities a year ago. Despite a strong outlook of double-digit sales and earnings growth for the foreseeable future, the
valuation of the company has never been lower. I have been investing in global companies for over twenty years and this combination
of factors usually leads to strong returns.
Siemens also reported a strong quarterly result, dispelling fears around the impact of the war on European multinationals. Revenue for
their fourth quarter rose 18% and net income more than doubled. Their digital industries business, which focuses on factory automation
software and motion controllers, grew profit by 43%. Strong demand for electrification and electrical products around the world drove a
40% increase in their smart infrastructure division. Siemens Healthineers saw revenue growth of 16%, with profits up 40%, driven by
good growth in their imaging and diagnostics businesses. While I was confident in the performance of the businesses after meeting the
company in Germany in September, I was pleasantly surprised by the strength of every division.
Stay In Touch