Apollo Asia Fund
What was new - 2017 archive

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22 Dec 17:
The tiny Swedish municipality of Lysekil is about to let a controversial Chinese businessman with strong military / party links build the largest port in Scandinavia, in an environmentally sensitive fjord and strategic location, and neither Sweden's central government nor the EU have any right of review, according to this article which seems so extraordinary as to have a ring of truth... ?

18 Dec 17:
Muzzle the messenger: a Hong Kong court blocks short seller Emerson Analytics from issuing any further reports on nation's largest aluminium smelter, China Hongqiao. How the court proposes to enforce such an order against an anonymous group of authors is unclear, and a gag order to protect a listed company against legitimate questions seems bizarre. Eroding the freedom of analytical expression will not improve China's capital allocation. Emerson's reports have raised good questions, and their hit rate with earlier analyses suggests to us that they are providing a valuable public service. Thanks to GMT Research for highlighting.

13 Dec 17:
'The scale and scope of Asian and African new cities is nearly incomprehensible in the current Western view of development', notes Wade Shepard. His article on the many new megacities explains the powerful short-term drivers of this global building boom. Has anyone tried to analyse the aggregate environmental and resource costs, and the risks to our ecological support system? or the long-term economic impact of so much privatisation of the commons?

4 Dec 17:
The Apollo Asia Fund NAV rose 1.6% in November, to US$2,276.67; charts.

24 Nov 17:
The HKEX consultation on capital raising is due to close today: David Webb requests submissions, or support for his views - noting quite rightly that in markets like ours, 'few things are more important than pre-emptive rights and proper capital discipline'. In an earlier article, he makes the case for INEDs to be truly independent - or if HK's current requirements remain in force, dropping the pretence of independence.

2 Nov 17:
The Apollo Asia Fund NAV rose 0.2% in October, to US$2,239.97; charts.

16 Oct 17:
The 3Q report discusses US dominance of the international payment system, and the likely eventual emergence of Chinese and Russian alternatives.

9 Oct 17:
David Abulafia discusses 'proto-globalisation' in a succinct summary of the overland and maritime silk routes: 'How China's first silk road slowly came to life - on the water'.

3 Oct 17:
The Apollo Asia Fund NAV rose 1.8% in September, to US$2,234.63, fractionally ahead of the previous peak reached in June; charts.

8 Sep 17:
Wade Shepard provides an excellent overview of 'China's seaport shopping spree: what China is winning by buying up the world's ports', suggesting the formation of a 'new geo-economic paradigm'.

Tim Johnston's paper for the Australian Strategic Policy Institute, 'The strategic risks of East Asia's slowing economies', may be of particular interest in relation to Southeast Asia, drawing attention to long-term political developments which are sometimes overlooked. Investors may wish to take note, as 'the blurring of the lines between the political and economic elites means that any anger of the politically dispossessed is just as likely to be aimed at economic targets as at political figures and institutions.'

7 Sep 17:
Professor Gomez was interviewed on Malaysia's BFM radio about 'Minister of Finance Incorporated' (podcast). The book focussed mainly on the largest companies under the seven GLICs: in 2013 the top 35 listed GLCs represented 42% of the market capitalisation of Bursa Malaysia. His students are now looking at another 900+ GLCs, companies controlled by state governments, and companies controlled by other ministries, and expect by next year to have expanded their network map. They recommend dispersion of power, and supervision by effective parliamentary committees: their research may provide useful ideas to reformers within the system. Prof. Gomez is also keen to debate the appropriate role and size of the public sector, and the protection of a private sector in which independent SMEs can flourish.

5 Sep 17:
The Apollo Asia Fund NAV fell 0.5% in August to US$2,194.89; charts.

'Malaysia's political economy has quietly undergone a major transition that has escaped public attention. Corporate power has shifted from UMNO and well-connected businessmen to the government', notes a remarkable new book, 'Minister of Finance Incorporated', written by a team led by Professor Terence Gomez. 'Corporate wealth is now heavily situated in the leading publicly listed GLCs, controlled through block shareholdings by GLICs under the jurisdiction of the Minister of Finance.' 'If UMNO members once had many sources of patronage, they now have only one source if they wish to obtain accesss to federal government-generated economic concessions. This is profoundly problematic in terms of public governance as the Minister of Finance [since 2001] concurrently holds the position of Prime Minister'. This anomaly is partly due to the unintended consequences of past reform efforts, as well as to reform promises unfulfilled, but structural reform is recommended. The history is fascinating, and for a book based on the compilation of prodigious quantities of data it is a remarkably good read. Amazon is currently listing it at US$83.11 plus p&p. Support independent publishing and bookselling: buy it from the source - the list price of RM45 is equivalent to US$10.55!

7 Aug 17:
If you own Hong Kong shares, directly or indirectly, read David Webb's 'One Board, One Regulator'. Under current exchange management, the risks to your prosperity are rising. David's suggestions for a better market are excellent, and would improve capital allocation for the economies of the catchment area as well as market efficiency for investors.

3 Aug 17:
The Apollo Asia Fund NAV fell 1.2% in July to US$2,205.38; charts.

28 Jul 17:
We recently learned a new four-letter word: OFAC - the US Office of Foreign Assets Control. Last Saturday one of our holdings, CSE Global Ltd, announced that it had agreed to pay US$12.03m, 7% of its shareholders' funds, to the US Treasury, to settle its potential civil liability for alleged violations of US sanctions relating to Iran. CSE and its subsidiary, both registered in Singapore, were working perfectly legally in Iran, with non-US counterparties. Their mistake was to make some payments to these international suppliers in US$, and to do so through a bank (a non-US bank, in Singapore) to which it had undertaken to avoid any Iran-related transactions. OFAC's Enforcement Information and Settlement Agreement refer to US$ payments totalling US$11.1m, and a potential penalty of US$38.2m. This amount - more than three times the payments in question, a huge multiple of any profits which might have been expected on the transactions, and 19 times the previous week's claim against Exxon - seems disproportionate, to put it mildly. CSE agreed to settle 'as the alternative would have been a costly and lengthy litigation in the United States, which would take up much of management time and resources, the outcome of which is not at all certain'. Given the current situation, we support that decision. We also wonder about the new incentives to find alternative currencies and payment systems with which to conduct international trade, and what the long-term consequences may be.

We will therefore watch with more than usual interest the challenge by Exxon to its OFAC penalty claim: 'OFAC seeks to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today... OFACís action is fundamentally unfair'. We do not usually read court filings: Exxon's is bracing.

After noting threats to freedom of expression in many other Asian countries, I find it encouraging to note both the Singapore public response and this interesting article in the Straits Times: 'National Arts Council faces online backlash...' for its lukewarm compliments to the award-winning Sonny Liew. For anyone yet to read 'The Art of Charlie Chan Hock Chye', here's one recent comment on 'layers upon allegorical layers of storytelling and critical insight... national history conveyed through the art of comics'.

27 Jul 17:
The Public Company Accounting Oversight Board in the US has revoked the US registration of Crowe Horwath (HK), for following the instructions of the Chinese Ministry of Finance on release of documents relating to audit of a PRC company listed in the US. The PCAOB says that 'non-US legal obstacles do not create an exception to a registered firm's obligations'. In this war of will between superpowers, any Hong Kong company would have to defer to China. Paul Gillis thinks the US action justified, but is 'disappointed that they do not pick on someone their own size. Most of the market capitalization of Chinese companies listed in the US belongs to companies audited by the Big Four, yet the PCAOB seems unwilling to take these firms on.'

'Good for Alibaba? SCMP quashes column on Xi-linked tycoon' - but Asia Sentinel has published it.

26 Jul 17:
'Indonesian president encourages extra-judicial killings (foreigners preferred)', notes Elizabeth Pisani; Willy Wo-Lap Lam writes on how 'Beijing harnesses Big Data & AI to perfect the police state', and why your Chinese counterparts may not have heard of Liu Xiaobo.

21 Jul 17:
'Forbes magazine dumps an article on an influential HK tycoon' - but Asia Sentinel has stepped in to republish it, adding further context and concerns. The combined report notes that 'the continuing tightening of the noose around democratic practices in Hong Kong now appears to be playing itself out in the New York-based Asia Society, the prestigious nonpartisan educational organization dedicated to promoting mutual understanding between Asians and the United States, and its billionaire Hong Kong chairman' [Ronnie Chan of Hang Lung Properties], and asks 'whether the Asia Society headquarters in New York, including its Co-Chair and 66 trustees, are complicit in what appears by its repeated programming decisions in Hong Kong, to be amplification of Chinese government propaganda'. It notes Chan's connections 'at Harvard University in Cambridge Massachusetts, the University of Southern California in Los Angeles, the Peterson Institute for International Economics in Washington DC, the World Economic Forum in Switzerland, the East-West Centre in Hawaii, and the Council on Foreign Relations in New York and Washington DC' and the suspicion that 'these connections are facilitated by donations or the hope of donations... the Chan family, through its Morningside Foundation, donated $350 million to Harvard University... the largest ever single donation to Harvard.' Options for remedial action by the Asia Society and its illustrious trustees are suggested, in the interests of democracy, free speech, their own reputations - and a more interesting Asia Society.

Asia Sentinel also explains a new loss to investigative journalism and critical reporting, the takeover of the Philippine Daily Inquirer, 'arguably the country's most important newspaper': 'Philippines' Duterte claims a crusading newspaper's scalp'.

18 Jul 17:
The 2Q report touches on Chinese regional investment, and control of strategic territory over the last two millennia.

11 Jul 17:
Michael Vachon, an advisor to George Soros, requests that we spread the news of the anti-Semitic, xenophobic, anti-Soros advertising campaign launched by the government of Hungary: 'Darkness Falls'.

4 Jul 17:
The Apollo Asia Fund NAV rose 4.8% in June to US$2,231.09, a new high; charts.

29 Jun 17:
Following the publication of the annual BP Statistical Review of World Energy, sites providing helpful graphical analysis of the data include crudeoilpeak.info, Energy Matters (euanmearns.com), and the Energy Export Databrowser.

2 Jun 17:
The Apollo Asia Fund NAV rose 3.2% in May to US$2,128.89, very slightly above the previous high; charts.

15 May 17:
The 2016 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.

3 May 17:
The Apollo Asia Fund NAV rose 1.6% in April to US$2,062.85; charts.

9 Apr 17:
The 1Q report discusses business risks under capricious rulers, and a regional stock exchange seeking suggestions for improvement.

4 Apr 17:
The Apollo Asia Fund NAV rose 5.2% in March to US$2,030.55; charts.

1 Mar 17:
The Apollo Asia Fund NAV rose 3.3% in February, to US$1,930.46. Charts will be updated later in the month.

23 Feb 17:
Returning to the topic of Disappearing Hills, a New York Times article mentions more - in Cambodia, where iconic limestone karst scenery and undocumented ecosystems are being quarried by joint ventures with the top Thai cement companies: 'A race to document rare plants before these cliffs are ground to dust'.

A more hopeful message comes from Derek Byerlee, author of a new book on tropical oils, interviewed here: 'What happens when the soy and palm oil boom ends?' He envisages ongoing demand growth, but at a slower pace, allowing cautious optimism that the environmental impact may be reduced by better management and prioritisation of land use. Poor governance in areas like Kalimantan and West Papua make this challenging, but 'the zero deforestation commitment by big traders of palm oil is a major breakthrough' and 'new technologies for supply chain management and real-time monitoring of deforestation improve the chances for success'.

Thought-provoking charts on the demographic transition under way in China and worldwide are provided by Chris Hamilton on the Econimica website, in this and earlier postings.

The depressing news of the conviction of Lena Hendry for organizing a private showing of a human rights documentary, under an act which apparently prohibits possession of a film without government approval, was accompanied by comment on Malaysia's slide down the rankings of the World Press Freedom Index. The free flow of information is vital to an investment management firm, and to efficient capital allocation for a country, so we looked at the rankings. Disconcertingly, in the 2016 ranking, most of the countries in which we hunt for investments are ranked between 130 and 176 out of 180. (The only exceptions are Japan, Australia, and Hong Kong for now.) Alarmingly, over the 10 years since 2006, declines in this group have outnumbered improvements by 9 to 3. Improvements were in Myanmar, the Philippines (we'll see if that lasts), and Pakistan. The fastest slump has been in Malaysia, from 92 to 146. Forward-thinking governments might wish to encourage a well-informed workforce.

6 Feb 17:
The Apollo Asia Fund NAV rose 3.0% in January to US$1,868.62; charts.

Inside Indonesia has a special edition discussing an urgent need for environmental education. This would be relevant to many countries; sharing best practice on educational approaches and resources would make sense.

16 Jan 17:
A Mongabay article on the controversial Don Sahong dam project asks how much the Lao government is risking for hydropower. It has excellent links, such as this stunning map of the many regional hydropower projects.

The 4Q report discusses PNJ, Vard, Daibochi and Pure Circle.

4 Jan 17:
The Apollo Asia Fund NAV fell 0.4% in December to US$1,814.41; charts.

Claire Barnes

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