Apollo Asia Fund's NAV per A share rose 2.6% in the second quarter, and 4.1% year-to-date. It's up 27% over the four-and-a-half years since the COVID pandemic began, and 66% since the end of March 2020, when global markets had begun to rally after the initial pandemic slump. Over the 26-plus years since inception, compound annual growth has been 16.3%, and the NAV has multiplied 55-fold.
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Malaysia and Thailand have applied to join BRICS; 30-40 more countries are said to be interested. The ten current members already represent 45% of world population, 29% of GDP, 42% of oil production, and a wide range of resources. Members have stressed that it should not be viewed as an anti-Western alliance - but many clearly feel it important to explore options for a new world order that is no longer dominated by the US.
Former Singapore minister George Yeo spoke at a UBS conference in May of this "great transition" to a multipolar world, of its eventual inevitability, and the diplomatic balancing act now required for Southeast Asian countries, given the strength of China as the regional superpower. "No-one wants China to be an enemy; everyone wants the Americans in the room". Yet... US unilateralism has caused understandable resentment (he spoke for example of the Hongkong officials denied banking services), and is bringing forward the transition: "everywhere now the US will find countries standing up to them".
This shift in mindset may be of no quantifiable significance as yet, but such baby steps seem to me quite encouraging.
For context, this follows a period in which some western institutions have been repatriating funds from whole countries or regions. Some investors are wondering about the complications that might ensue from US counterparties. (Apollo Asia Fund's global custodian is Northern Trust, an American company; it has served us well in recent years. While acknowledging the new risks, we are making no change for now.)
Many investors have been scarred by the Russian experience, and scared by the insouciance with which the US imposes losses on businesses, and on other economies even if allied. War risks are one thing, but losses inflicted by one's own government or its allies are galling; losses inflicted by a distant third party, even more so. Sanctions, and the potential deglobalisation of finance, have been on the minds of many investors, to an extent that few of us may have imagined three years ago.
These concerns have grown considerably over the last nine months, as a result of sabre rattling by many parties, but also by the US defiance of the strong consensus in the UN General Assembly and Security Council on Israel's military actions in Gaza, and the funding and weaponry for Israeli belligerence. In most Asian countries, a generation or three have grown up without personal memories of war, but the shocking images from Gaza in particular have focused many minds on the devastation that it involves. In conjunction with Israel's defiance of repeated rulings by the International Court of Justice, this has shattered many illusions of the US as a benevolent superpower. Meanwhile, China is waging an intense PR campaign to present itself in that role.
Mainstream media in the west is providing limited coverage of many events that incense the rest of the world, and significant percentages of their own populations. Segregated information bubbles are becoming a real problem. Misinformation is too, but the failure of many leaders to recognise the importance of different viewpoints provides a cautionary example to investors. As political risks grow in importance, it may be helpful to recognise multiple perspectives - perhaps especially when uncomfortable.
One recent revelation which shocked many was the Reuters report on a deliberate American campaign to disparage the Chinese COVID vaccines and PPE which would have been first to arrive in the Philippines. This fomented an anti-vax movement now thought to have caused tens of thousands of unnecessary deaths among Filipinos, hitherto the most American-oriented people in Asia. Opportunities to further global cooperation in public health were not only thus wasted, but rendered toxic by the politics of blame and recrimination. Now the tables have turned, with the rapid spread of rumours on Chinese-language social media about negative effects of the American vaccines... hardly helpful to management of the next crisis.
The US imposition of rules on the rest of the world has also forfeited much goodwill over the last couple of decades. Even Apollo Asia Fund has been affected. We wrote about bureaucracy in 2011, and Kafka's costs in 2016. Our holding PureCircle had shipments seized by US Customs and incurred huge costs to regain access to the US market, all on the strength of unfounded accusations by an anonymous whistleblower: cui bono? 2017 brought the shock of the OFAC ruling against our holding CSE, highlighting the dangers of US$ remittances.
The current 'rule-based order' is clearly capable of improvement, yet sudden transitions could be dangerous. This is why we welcome the many new diplomatic initiatives, and discussions of alternative financial infrastructure. Broader networks should contribute positively to resilience. Asian economies have so many attractions to investors, yet the risks of cross-border investment have been rising; strengthening cross-ties provide some reassurance.
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On another subject... I'd like to recommend the Mekong Review: it refers to "Asian literature", but also covers socio-economic change. The first five pages of the current issue (May-July 2024) comprise thoughtful articles on trends in five countries which are all of current interest to investors (India, China, Indonesia, the Philippines and Vietnam), with a long-term perspective that now seems unusual and refreshing. The book reviews are also excellent, and time-saving. It's a good read, and deserves more subscribers. https://mekongreview.com
Claire Barnes, 2 July 2024
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