Apollo Investment Management

Cognitive dissonance
Apollo Asia Fund: the manager's report for 3Q2012

Fund PE chart
Fund EPS chart
Fund DPS chart
Fund BV chart

The Apollo Asia Fund's NAV rose 11.4% in the third quarter, to a new high of US$1,735.24: over the last twelve months it was up 40%.

This has taken valuations back to the high end of the historic range. At the end of September, our portfolio was on an estimated current-year PE of 14.7, with estimated current portfolio EPS up 13% from a year earlier. Over the last five years, compound growth in the porfolio's earnings, dividends, and assets per share has averaged 9-14% per annum, depending on the measure. (These figures are derived from the PE, yield, and P/BV of the portfolio, and may differ from the historic performance of the companies we hold at any given moment.) If we can maintain fundamental growth at a similar pace in future, say 10% per annum, we will consider ourselves lucky. Past growth in the Fund's NAV has been enhanced by rerating; this could be reversed in the future.

Geographical breakdown
by listing; 28 Sep 12
% of assets
Hong Kong
Net cash & receivables

Disappointments in China and India have caused some investors to turn to South East Asia, where demographic trends are strong and economic management is perceived as more stable. Our stocks in Malaysia and Thailand have been performing strongly, in some cases reaching uncomfortably high valuations, and we have been lightening up on some holdings in both countries. Neither is immune from the problems of the world. Export dependence, check. Resource limits: check. Rising costs of environmental destruction: check. Misallocation of capital: check. (In both of the latter categories, there are horror stories to tell - but perhaps another time.)

In few other areas of the world can the contradictions of our current socio-economic model be so evident - the environmental strains, and the impossibilities of continuing indefinitely on the course of the last few decades. In few other areas can planners be so ambitious in their vision of business-as-usual - or, at least, in their determination to profit as greatly as possible in the short term. So more concrete will be poured, and GDP will rise - for now.

Perhaps businessmen and officials should pay more attention to the fashion world. Chanel's new show features peasant smocks and artists' tunics, hand-made textiles and the romance of the land. Status symbols are gone. Simplicity is key - and the desire for protection. Back to the countryside, back to traditional crafts and activities, and back to the 70's - while expressing hopes for technology in the form of solar panels and wind turbines. 'Energy is the most important thing in life', says Karl Lagerfeld.

Claire Barnes, 12 Oct 2012

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