Knight Asia Newsletter March 2024
Global markets edged higher in March with the MSCI AC World Index +2.9% (YTD +7.8%), the Hang Seng Index +0.2% (YTD -3.0%), the MSCI Asia Ex Japan +2.3% (YTD +2.0%), the MSCI AC ASEAN Index +0.7% (YTD -1.3%), the Thai SET Index (USD) -0.8% (YTD -8.3%), and the FTSE Vietnam (USD) +1.3% (YTD +6.3%). Our Knight Mekong Strategy Fund was +0.1% (YTD +0.3%); and the Knight Asia Contrarian Fund was -0.2% (YTD -0.4%).
For the past month, ASEAN markets were mixed, whilst HK/Chinese markets stabilized and began to recover. The Western institutional “boycott” of Chinese capital markets seems to be moderating somewhat with talking heads on CNBC becoming more positive. In any case, Chinese markets are perfectly capable of rebounding without Western flows. The US has stepped up its dialogue with China in recent weeks, with a Biden/Xi phone call, and several high level visits from US cabinet secretaries. This is in keeping with our sense last year that the US realized it had pushed China too far into a corner. Of course with an upcoming potential Trump 2 presidency, the respite may be short-lived. Trump was “saved by the bell” on his collateral fraud case, receiving a $175m court bond loan on the back of making a paper US$ 4 billion profit on his Truth Social listing. He is likely to win on the back of the US illegal immigration crisis (6.3 million in 2022/23). Unfortunately nationalist governments tend to be anti-globalism, although in the end we expect US corporate oligarchies will prevail.
US markets look about ready to tumble on the back of disappointment with the speed of rate cuts, and we remain concerned that the market may temporarily dictate higher interest rates instead of the central banks. Although inflation is theoretically under control recent US data suggests otherwise (+3.5% in March), plus the governments of the US and Europe have to fund huge deficits and debt rollovers in 2024, and may need to bid up market rates for funding. The Central Banks will be reluctant to intervene with QE again since their money creation may lead back to much higher inflation. Of course, eventually this will be the only option (2025?).
In Thailand, the two T’s government is hitting all the right notes on tourism and Mekong integration, and now needs to translate this into domestic growth. Chinese FDI on the Eastern Seaboard will help. As will casino legalization which seems to be imminent. Former PM Thaksin has been gradually increasing his profile, to help swing support away from Move Forward Party to Pheu Thai Party, although we believe they remain “friendly competitors”. Should MF be dissolved, for attempting “to overthrow the constitutional monarchy”, we expect many MF MPs to defect to PT, rather than joining a new incarnation of Future Forward/Move Forward..
We visited our key investee company in Cambodia, BRM Agro, in late March (photos attached). BRM has made huge strides in expanding its integrated milling capacity, and developing a strong sales network in Europe. In order to achieve its full potential it now needs a lot more working capital, and is in negotiations with various DFI financial institutions for loan/equity capital. BRM has also begun discussions with a Cambodian investment bank do carry out a potential bond issuance followed by an IPO and listing on the CSX.
In Myanmar, the latest feedback we received indicated the possibility of a general election happening in October/November this year under the new proportionate representation system. It is unclear whether the various opposition movements would participate or accept the result. Regardless of how flawed the election might be, this would hopefully go some way towards restarting foreign direct investment and diplomatic engagement. As well as create opportunities for us to monetize our Myanmar portfolio.
Gold and oil prices rallied further in March, with no apparent intervention from the US government. Silver prices are still lagging at approximately 1/80 of the gold price, a near record disparity, and seems to be a reasonable buy for catch-up.
With Best Wishes
JEREMY