The Apollo Asia Fund's NAV rose 10% in the third quarter, reversing the previous quarter's loss to close at US$458.05, slightly above its previous high reached in February. For the first nine months of 2004, the NAV is up 6.8%; over twelve months it is up 37%. (Performance charts.)
As for some time, our major concerns centre on US excess and overvaluation, & consequent global imbalances. Recent Fannie Mae disclosures make us wonder whether this is the beginning of the end. Meanwhile business life in Asia goes on, and we try to hold shares in well-managed cash-generative businesses which can prosper in good times and avoid catastrophe during the rough periods. Our day-to-day concerns, therefore, are on the quality of decision-making by the managers who do all the real work on our behalf.
Day-to-day irritations, apart from growing bureaucratic burdens such as the two days of compulsory & unproductive Securities Commission courses in which I am currently enrolled, include avoidable disclosure deficiencies, now compiled in a separate list, to which I may add over time. Ensuring a good flow of information to markets, and good access to historic information, requires mostly organisation, at an IT budget which is trivial when compared to its national importance, Well-informed markets are fairer markets, which inspire greater confidence over time, lead to better capital allocation, and consequently improve economic performance - clearly a public good, to be provided centrally, as an important responsibility to be allocated between stock exchanges (now often privatised entities, driven by short-term considerations) and their regulators.
| Top ten
holdings as at 30 Sep 2004 |
| Aeon Stores (HK) |
| Aeon Stores (M) |
| Big C |
| Bumrungrad Hospital |
| China Fire Safety |
| Glorious Sun |
| Inco Indonesia |
| Luk Fook |
| OCBC |
| Overseas Union Enterprise |
| Geographical
breakdown as at 30 Sep 2004 |
% of
assets |
| Hong Kong-listed equities | 36 |
| Indonesian equities | 13 |
| Malaysian convertibles | 1 |
| Malaysian equities | 6 |
| Singapore equities | 13 |
| Thai equities | 20 |
| Other equities | 2 |
| Net cash & receivables | 9 |
100 |
Among our top holdings, the two Aeon Stores companies run Jusco supermarkets & department stores, in HK/Southern China & Malaysia respectively. Their names were changed recently, a strange decision to emphasise group identity over the name by which consumers know the outlets. Big C operates supermarkets and hypermarkets in Thailand. Demographics and lifestyle changes in SE Asia and China underpin a longterm trend to modern retailing, even though I personally prefer traditional small outlets and markets, and support zoning regulations to avoid over-dominance of the giants.
With the exception of the garment export half of Glorious Sun's business, and the nickel production of Inco Indonesia, the profit drivers for our top holdings are primarily in local or regional consumption.
The current-year PE for our ordinary shares was 10.2 at end-Sept, with a net dividend yield after Asian taxes of 4.7%. Earnings growth for the present holdings over this year and next is estimated to average 19% pa, but due to changes in the portfolio mix, the current-year estimate of portfolio EPS is up 38% over the last twelve months.
Ideas are, as always, welcome.
Claire Barnes, 10 Oct 2004
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