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Zài jiàn (goodbye) to Asia (for the time being)

Writer's picture: CrossGrainCrossGrain

To our Clients and Friends –


Another Friday, another huge market selloff. On April 22nd, the Market (represented by the S&P 500) sold off by 950 points, the largest decline since March of 2020. Last Friday, April 29, the Market fell off another (3.6%). The S&P 500 has thus fallen for four consecutive weeks, shedding (8.8%) in April and bringing its year-to-date losses to (13%). The tech-heavy Nasdaq dropped (4.2%) on Friday, bringing its losses for the month to more than (13%), its worst showing since October 2008, and this index is now down (21%) for the year, its worst start on record.


That said, the US remains the best-looking contestant on the stage what with strong consumer spending, employment and prospects for post-COVID, post-correction recovery. Asia specifically is very concerning mainly because of China. The Communist government continues to pursue a COVID-0 policy, continually locking down large parts of its populace and notably in the most productive areas of its economy which dramatically impacts business across the globe. As China goes, so goes greater Asia, and we believe there will be no change in this downward trend for some time.


Accordingly, today we elected to sell all of our holdings in the Matthews Pacific Tiger Fund (MIPTX). This fund is down (15.75%) year to date, a little worse than the slightly broader iShares MSCI Emerging Markets ETF (EEM) which is down (13.9%) this year. Regarding China specifically, the SPDR S&P China ETF (GXC) is off (18.56%) for the year. All in all, Matthews has done a good job, but we think Asia-Pacific stocks, so closely tied to China, are not the best investment option at the moment.


We are not completely out of EM opportunities. Our two international mutual funds – Goldman Sachs GQG Partners International Opportunities Fund Institutional Shares (GSIMX) and Harding Loevner International Equity Portfolio Institutional Class (HLMIX) – are both actively managed and will allocate to emerging market companies as and when appropriate. We are holding on to these two positions, albeit with reduced risk, and will let them capture any recovery or opportunities in Asia-Pacific until such time as a broader recovery is evident.


We reiterate what we said in our letter last week, that we do not anticipate a market crash. We have accrued a good deal of cash in all our accounts and will be opportunistic and prudent in redeploying after mid-Summer when we think this extensive market correction will have run its course. So, our positioning remains underweight equities, particularly international and emerging, underweight traditional fixed income, overweight natural resources and alternative fixed income, and continually interested in private markets particularly private credit and private real estate with long term growth investments in venture capital and private equity.


Both are hands (all four of them) remain firmly on the wheel, slightly white-knuckled but generally positive about how the year will play out. The ride has been very bumpy heretofore and will continue to be up and down for another month or so, but hopefully smooths out heading in the second half of the year.


Warmest regards,

Jeff & Biff


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