LATIN AMERICA (Ita? Asset Management)

The manager of the Milltrust Latin America Fund remains constructive on Mexico despite the country falling victim of a slowdown in GDP due to the new government and lower spending. The team at Ita? Asset Management expects the country to recover in 2H13 as spending recovers. Additionally, the Mexican peso could appreciate considerably if energy reform is passed in August, which is likely to happen. For these reasons, the team is bullish on Mexico and is increasing the fund?s exposure in this downturn.

On the other hand, Brazil presents many more structural issues than Mexico and the managers expect that it will take more time to recover. However, the Brazilian equity market (and the region as a whole) is oversold, and valuations have become more attractive, thus creating better opportunities for strategic entry points.

BRAZIL (BTG Pactual)

The Brazilian market sold off in June, with the Ibovespa down more than 11% (in BRL), due to a combination of events: (i) outflows from emerging markets and riskier asset classes in light of the FED signaling a slowdown in asset purchases, therefore implying lower global liquidity; (ii) a slowdown in macroeconomic activity in Brazil; and (iii) a series of protests in Brazil, which contributed to the drop in activity and to increased risk aversion. These events also led to a 4% depreciation of the Brazilian Real during the month.

In the last few months, the Milltrust Brazil Fund has been reducing exposure to Consumer Cyclical names, and adding more defensive cases, such as Ambev, one of the positive contributions in June despite the difficult environment, whose price levels more than reflected the weak 1Q and where BTG Pactual expects a gradual recovery in volumes.

GREATER CHINA (Value Partners)

The central banks? decision to refrain from injecting liquidity signaled to banks that they should limit their use of the interbank market to fund some of the popular wealth management products, which are potentially creating froth in the system.? The act reflects the government?s resolve in pursuing structural adjustment to support the changing economy.? Value Partners believes there is no systematic banking crisis evolving but a call for a more robust banking system, greater transparency and better liquidity.

The Milltrust Value Partners Greater China Fund remains focused in the Consumer space, particularly in areas the manager considers less vulnerable to growth moderation, such as the Consumer Discretionary, Consumer Staples and Healthcare sectors which were strong contributors to the fund in this period. In June, exposures were added to Energy and Utilities, whilst trimming exposure to Information Technology and Industrials.

The medium- to long-term outlook for China remains attractive. Already the valuation of China-related stocks is at an exceptionally cheap level. The price-to-earnings ratio of the market for 2013 is at only 6.8 times for the H-share index, which appears similar to the trough valuation seen in 2008.

Before rushing to buy, however, Value Partners believe investors have to consider the risk of further disappointments for the market, as the Beijing government led by the new leadership of Xi Jinping and Li Keqiang, implements the biggest reform program on the Chinese mainland since the mid-1990s. ?While this program, which should result in major benefits to China and the world, may bring long-term gain, there is a degree of short-term pain in the form of reduced spending and lower growth.? This is an opportunity to rebalance the firm?s research and portfolio composition, and reposition the Fund for the coming new opportunities in the China story.

INDIA (UTI International)

Indian markets suffered a setback in the month of June led by global liquidity turning negative following suggestions of QE tapering which led to an increase in the yields in the developed markets and a global risk off rally. This led to a correction across all the asset classes, bonds, equities and commodities. The Indian rupee depreciated by a further 5% on the back of increased outflows in both debt and equity by the Foreign Institiutional Investors (FIIs).

The Milltrust India Fund increased its position in Automobiles and is steadily increasing its position in Banking, owing to their relative attractive valuations and as early beneficiaries of a revival in the economy (at the expense of the funds’ more defensive positions in Utilities and IT).

ASEAN (Lion Global Investors)

After reaching an all-time high in mid-May, the MSCI South East Asia index has fallen sharply in line with other regional markets as concerns about US Federal Reserve move to reduce its quantitative easing activities caused long term interest rates in Asia to spike up. Furthermore, the Chinese market pulled back on liquidity squeeze concern. Malaysia emerged as a gainer, following the elections, whilst the Philippines, Singapore, Indonesia and Thailand trailed in descending fashion.

Within Asia, the ASEAN markets have benefited disproportionately in recent years from the flow of foreign funds as investors seek solace in economies that were less leverage to slowing broader global economy. With the expectation of an improving US and Japan economy, Lion Global Investors suspects there will be some portfolio re-balancing to the North Asian markets, which are a major beneficiary to a recovering global economy.

In view of the above mentioned, the manager of the Milltrust ASEAN Fund is more defensive in the short term. His market preferences have shifted to Singapore and Malaysia which have the highest exposure to exports within ASEAN and have stronger current account/foreign reserves. In addition, the fund has a cash position of around 20% currently and the team is looking to re-invest into Thailand, Indonesia and the Philippines on weakness.