Apollo Asia Fund
What's new?

23 Mar 20:
Market movements in March have been brutal. In the first twenty days, all of our currencies fell against the US$ (the worst being pounds sterling, Indonesian rupiah, and Australian dollars, all down by 9-11%), compounding the share price losses in each local currency. Only one of our holdings recorded a slight share price increase for the period (a convenience-store operator, doing well, and probably too illiquid for anyone to have tried to sell); all others were down even in local currency terms, and mostly by percentages well into double digits. Our three worst performers were down by between 45 and 67% in local-currency terms, from a starting point well below their highs; these three now represent only 2% of NAV (originally, of course, more). The shares of four more companies fell by about 30%. Overall, the fund's NAV at the close on Friday 20th March was estimated at US$1,570, down 16.7% month-to-date and 25.2% year-to-date.

This markdown is slightly worse than the regional index which we use to show overall market movements (MSEUCFFX, -16.0% and -22.0% respectively), but I believe that our companies overall will prove more resilient than average. The lack of performance differentiation is not uncommon in the initial phases of major sell-offs. Historically, we have sometimes been able to outperform subsequently, due to the resilience of our chosen companies, the steadiness of our investors, and the identification of new opportunities amidst the rubble. Current conditions are unprecedented in the careers of almost all living investors (even perhaps Charlie Munger, who was 21 years old at the end of World War II), so it remains to be seen if we are again lucky enough to achieve this.

The risks are many and various; long-term outlooks for many sectors (and all individual companies) must be reevaluated. However, the qualities of management integrity and competence, cash-generation, operational and balance sheet resilience will be more relevant than ever, and surviving companies may also see new opportunities. With the social, monetary and fiscal response in western economies uncharted, it now seems to me safer to invest in resilient businesses in Asia, where the COVID-19 outbreaks in several countries had appeared to be coming under control and medical authorities are on vigil to combat resurgence, than in balances with financial institutions in the rest of the world which is clearly no safer and where people and governments are less prepared. We claim no certainties, but will attempt to apply the disciplines which have worked for us in the past.

In January we reported that de-rating had reduced the PE of the portfolio to a current-year estimate of 10; the expected dividend yield was then 4.5%. Now we have no idea how to estimate current earnings, but those year-end figures will serve as guides to normalised valuation in the event that the current pandemic blows over within a few months: they imply a historic P/B of 1.1, with a PE of 8.4, and a dividend yield of 6.0%. These are not fully updated for subsequent announcements, and we'll do that in due course, but my impression has been that 2019 outcomes for our companies were for once slightly better than our subdued expectations. Precision would in any case now be spurious, given the new uncertainties, the likelihood of some permanent structural changes, and the pace of market movements. Today will show further market declines. Unwinding can feed on itself, as we saw with share price movements in previous crises; this time, even more businesses may fail to survive. However, for investors with staying power, including companies with strong balance sheets and struggling competitors, there are once again many potential bargains to be evaluated.

AIMS Asset Management has all personnel working from home under a Movement Control Order from the Malaysian government, currently declared for 18-31 March. The fund's custodian (Northern Trust) and administrator (Apex) have also been practising remote working and business continuity. On another turbulent day in the markets, we write with best wishes for the health and wellbeing of all our investors and readers.

3 Mar 20:
The NAV of the Series A shares fell another 5.1% in February, to US$1,884.59, again following a sharp decline in the last week of the month. Charts and updated comments on the long-term performance here.

3 Feb 20:
The NAV of the Series A shares fell 5.5% in January, to US$1,985.08, tumbling at the end of the month due to disruption by the virus known to some as WuFlu: charts.

24 Jan 20:
"An authoritarian-bureaucratic state that is unsuited and unfit to address public grievances and demands of the 21st century". Once the most popular destination in Asia for foreign direct investment, it was an excellent hunting ground for equity investors during the earlier years of the fund (admittedly after a crash). The former 'tiger cub' economies are not all ageing gracefully. Citizen confidence in this one is at a low ebb: 'Government's competence in question'.

17 Jan 20:
The 4Q report notes 'Strong business performance, masked by derating'.

10 Jan 20:
The FT has two excellent articles on sand mining, and the scale of this inadequately-recognised threat to Asian environments and to ecosystems on which very large populations (and our investments) depend:

Residents mourning the currently-disappearing hills and mountains will be aghast at projections of a further doubling in global demand for sand, gravel, and crushed rock. Proposals to mine limestone in international waters, and to ship the South Pacific's mountains to Asia's mega-reclamation projects over distances of up to 5,000km, should prompt a rethink of our economic models and priorities.

3 Jan 20:
The NAV of the Series A shares rose 1.7% in December, to US$2,099.66; charts.

2 Dec 19:
The NAV of the Series A shares fell 0.4% in November, to US$2,064.16; charts.

17 Nov 19:
Salutes to the HK Forward Alliance, which yesterday convened a one-day conference to promote dialogue. Limited in physical capacity to 700 participants, it was rapidly oversubscribed, but the proceedings were webcast so that others could follow from afar. Professional peacemakers with experience of conflicts around the world joined concerned Hongkongers to discuss methods of promoting dialogue, reducing polarisation, and establishing the conditions for substantive discussion of issues and solutions. Professional conflict negotiators explained the value of broad engagement by ordinary members of society in finding shared values and common ground, to build on empathy and rebuild trust, in order that partisans may back away from entrenched positions, rediscover nuance, and allow new perspectives, to start the examination of underlying issues and opportunities. They showed how this starts with individuals, and everyday discussions - and the relevance to many other issues, globally, on which sides have been taken and people are talking past each other. 'WAYS FORWARD: Let's Talk & Listen' pointed to small contributions we can all make, by learning to engage beyond our circles of agreement, and cultivating the Art of Conversation.

Resource documents that I found interesting include:

1 Nov 19:
The Apollo Asia Fund NAV rose 1.0% in October, to US$2,072.20; charts.

28 Oct 19:
The 3Q report talks of resilience and a way forward, 'Feeling the stones'.

24 Oct 19:
The Asian Corporate Governance Association, ACGA, has today written to Japan's Ministry of Finance to express deep concern about proposed restrictions on foreign investment: we share these concerns and agree with the recommendations.

1 Oct 19:
The Apollo Asia Fund NAV rose 1.3% in September, to US$2,052.30; charts.

3 Sep 19:
The Apollo Asia Fund NAV fell 3.3% in August, to US$2,026.89. Our permanent page on charts and performance includes some context on the longer term picture and outlook. The latter is hard to discern, but we keep peering into the haze. It is haze season in Asia, but nowadays many regions are getting used to permanent smog, one of many phenomena unimagined at such scale when the foundations of my original investment approach were laid down.

16 Aug 19:
Mark Mills provided compelling statistics on the environmental cost of green dreams; Joel Salatin responded with one of the most sensible energy articles that I have seen for a long time, recommending simpler living, and asking 'What have you done to reduce energy use?'

9 Aug 19:
  Compound growth and Hemingway Decline
"Gradually, and then suddenly." The accelerating rates of decline discussed in our 2Q report have a name, thanks to the investor and actuary Guy Thomas. In his helpful article 'Two parts of a whole...', he sets out the formulae relating to the simple arithmetic model, and dubs the result a Hemingway decline. The updated 2Q report is here.

1 Aug 19:
The Apollo Asia Fund NAV fell 1.4% in July, to US$2,096.73; charts.

The Rukor blog, following a June update on the May series entitled 'Capturing and bridling UNESCO', warns of the unusual challenges for 2020's UN conference for the Convention on Biodiversity, which is to be hosted in Kunming: 'China & global wildlife crisis'.

24 Jul 19:
Apologies, the 2Q report was uploaded without the essential charts. Here it is again, appearing as intended: '2Q report'.

Singapore on 11 July finally announced long-awaited improvements in its delisting rules to protect minority shareholders, reported in the Straits Times and Business Times.

We belatedly congratulate the independent investors in Challenger Technologies for blocking the squeeze-out delisting, and especially our friends at Pangolin Investment Management which helped with coordination and a series of clearly understandable analytical articles and updates on their website, well worth reading. Following another victory for independent investors at Indofood Agri Resources, a shareholder explains 'Why IndoAgri's recommending directors should resign'. We agree - but independent thinking by "independent directors" and "independent financial advisers" is sadly rare, and not conducive to regulation, so the market-based SGX rule changes are welcome. The Singapore regulators may need to pay close attention to concert parties and claims of independence there, and have signalled that they will do so. Good.

10 Jul 19:
The 2Q report is cheerily entitled 'Compound growth and exponential decline'.

1 Jul 19:
The Apollo Asia Fund NAV fell 0.5% in June, to US$2,126.94; charts.

3 Jun 19:
The Apollo Asia Fund NAV fell 2.6% in May, to US$2,138.33; charts.

The 2018 report of income for UK Reporting Fund purposes is now available here; the page listing all reports (starting 2013) is www.apolloinvestment.com/UKreportingfund.html.

Given our harrowing losses in the squeeze-out delisting of Vard (documented in 'Forced and unfair delistings', April 2018, and 'Vard saga continues', May-July 2018), I was happy to read in The Edge that the CEO of Singapore Exchange Regulation is

"pleased with certain 'signature cases' and 'landmark policies'. For example, when Vard's controlling shareholders tried to buy out minorities on what were clearly unfair terms, SGX RegCo responded by revising rules, giving minorities better protection when similar circumstances arise in the future."
- so I looked to see details of the rule change. I couldn't find them. A consultation was initiated in November, and closed in December. It's good to hear that there's an intention to protect Singapore's minorities in future - but when?

14 May 19:
Our screens are predominantly red again today - but there is one big macro development that should take your minds off the intensifying trade war and global politics. It relates to an area of breathtaking natural beauty, of extraordinary biodiversity, which I was fortunate to visit a long time ago. It could wreak economic and social as well as environmental havoc (again). A terrifying series of reports has been 'written at the urgent request of Chinese environmentalists... their only way of alerting the world'. It alleges that 'UNESCO staff, acutely aware that China is capturing an agency of the UN, are shocked but powerless'. The least we can do is to pay attention. Please read:

2 May 19:
The Apollo Asia Fund NAV rose 3.0% in April, to US$2,196.17; charts.

8 Apr 19:
The 1Q report considers prospects for Independent Thinking in the Co-Prosperity Sphere.

1 Apr 19:
The Apollo Asia Fund NAV rose 0.3% in March, to US$2,131.54; charts.

4 Mar 19:
The Apollo Asia Fund NAV rose 1.8% in February, to US$2,125.02; charts.

7 Feb 19:
China's clampdown on imports of waste plastics from January 2018 prompted diversion to other countries, political outcries, and announcements in several Southeast Asian countries about stemming the flow. The recent article 'Here’s what happens to our plastic recycling when it goes offshore' suggests that we don't currently know? as statistics are lagging or lacking? while George Monbiot's appropriately trenchant comments on 'Waste Colonialism' suggest that some exporting countries may prefer not to collect the info. Unless the countries of greatest consumption back the innovation-at-the-margin initiatives of companies and the waste-reduction efforts of individuals with coherent policy and an intelligently balanced regulatory framework of sticks and carrots, the waste may well be channelled to the countries with the least environmental protections, the remotest corners where supervision is least, or dumped in the oceans. The former might generate innovation and new winners in which we could consider investment; the latter may accelerate environmental apocalypse - the title of an article full of depressing anecdotes which ends with the very sound recommendation to enjoy the natural beauty of Asia while we can, and insider tips for ecotourism. If readers can shed light on effective policy initiatives or positive developments at scale, please let us know.

1 Feb 19:
The Apollo Asia Fund NAV rose 4.0% in January, to US$2,087.29; charts.

Amid the news flood, I draw to the attention of our readers two stories from Australia. Sarawak Report notes a 'Deafening Silence out of Australia over 1MDB's connection to top bank ANZ', which makes one wonder whether the regulator there is worthy of any taxpayer financing. Meanwhile, Australia's most valuable literary award has been won by Behrouz Boochani, still detained in Manus Prison after almost six years, chronicling the country's brutal treatment of refugees, and the extraordinary waste of human talent.

Melvin Gumal proposes Chinese New Year resolutions, explaining why we need to Save The Pigs. The commentator who tries to dismiss him as an armchair conservationist should try to keep up with his field trips in the jungle, and join him in braving the armed poachers. Melvin is one of my heroes, and first came to my attention when he won a Whitley Award.

24 Jan 19:
David Webb explains succinctly 'Why stock-plunges happen so often in HK'. The lack of interest in protecting investors from unnecessary risks is unhelpful to the social purpose of a stockmarket in promoting the efficient mobilisation and allocation of capital.

7 Jan 19:
The 4Q report has been posted: 'Flexible investments' - an aspiration, perhaps.

2 Jan 19:
The Apollo Asia Fund NAV fell 3.4% in December, to US$2,006.57; charts.

Claire Barnes

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