In This Week’s Issue…
by Alexander Kalis Managing Partner & Head of Investments at Milltrust International

In Asia, Chinese President Xi Jinping recently laid out a bold vision for transforming his country into a fully developed economy by 2050, with a particular emphasis on spurring innovation and technology. The bottleneck, according to Bloomberg, is in China’s education.

The Milltrust’s Keywise China’s Fund holds significant exposure to both the innovation and technology sectors, as well as in education through TAL Education which is expected to gain market share from smaller players and capture long-tail demand by leveraging its strong brand name. Chinese financials are also of interest, and are likely to benefit from the uptrend in the interest rate cycle, better performances of the equity market generally, and the consolidation in the banking sector, which should lead to a rerating of these companies.

In India, economic growth has bounced backfrom a three-year low, giving the central bank enough ammunition to keep interest rates on hold Dec. 6 amid an uptick in inflationary pressures. Milltrust’s 4-star Morningstar rated India manager, V. Srivatsa, favours financials, information technology and utilities which are poised to benefit from the Indian economic recovery and increased demand.

In Southeast Asia, Milltrust’s 4-star Morningstar-rated manager remains sanguine on the growth prospects of ASEAN economies going into next year where the economic drivers will mainly come from increased infrastructure and government spending especially in Indonesia, Philippines, Malaysia and Thailand. Continuing export momentum and higher manufacturing activities should continue to spill over to the broader economy benefitting the more export oriented economies of Singapore, Thailand and Malaysia which in turn should lead to increased employment and higher wages. As a result, consumption is primed to recover in ASEAN which should be positive for the markets.

National elections to be held in Malaysia and Thailand and regional elections in Indonesia next year should also provide an additional boost to consumption especially on the lead up to the elections. Possible headwinds will come from higher inflation and a potentially stronger USD next year, although they should be manageable.

Moving on to Latin America, Brazil has been the favourite market for Milltrust’s 4-star Morningstar rated Latin America manager for some time now. The country offers a combination of attractive valuations and growing returns for many of its companies, as the economy is recovering from the biggest recession in its history. The combination of lower financial expenses and operational leverage from revenues growth will culminate in earnings growth close to 20% for 2018, which is a major incentive for equity markets”.

2018 elections in Brazil will be highly important and a major test for the country, as well as those in Mexico and Colombia to another extent, especially with the possible advent of anti-establishment candidates.

In the Middle East, Saudi Arabia continued to face outflows from foreigners, amounting to $57m in October, putting pressure on equity market performances. Yet, up to $165bn of investments is expected to flow to the market over the next 3 years, according to State Street Global Advisors. According to Khurram Shehzad, investment manager at SEDCO Capital for the Milltrust SEDCO MENA Fund, we may see an upcoming rally in Saudi Arabia due to a better than expected 2018 budget because of +20% variation in budgeted and actual oil price. This will likely trickle down to many sectors including construction, retailing and servicing in particular.

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