Our fund returned 8.5% in January, while the average emerging market index was flat. This strong performance is attributed to our stock selection: 14 of our 31 companies produced returns greater than 10% (only 3 were down more than 10%), while the stock index of Malaysia where half of those winners came from was down -2%.
In early January, after a stock price pullback that wasn’t caused by any changes in highly positive fundamentals, we increased our position in a Malaysian property development company which is a sister company to another portfolio holding, a renewable energy contractor. The company’s chairman had purchased the obscure publicly listed business in 2019 and brought on board an experienced management team with vast business networks in Asia and the Middle East. New leadership at the helm rebranded and fully revamped the business from the get-go, strongly expanding the order book, executing new projects in Malaysia, Oman, and Qatar, and growing earnings over 100% in the last several quarters. What happened to the stock after our additional investment can be described as “leapfrogging”: in just two weeks, its price rose 140%. Given that our investment has performed so well so fast and is now less misunderstood by the market, the risk-return profile became less favorable, so we already scaled the position back.
In January we witnessed a market-wide sell-off in Vietnam, which happened after nearly six months of consistent growth. The coincidence of several factors – market’s fears that the rally is overdone, uncertainty regarding the US trade policy as it pertains to China and consequentially to Vietnam, rumors that retail investors are over-stretched on their levered equity positions, and first-in-two-months locally transmitted Covid-19 cases – led to a short-lived panic. We were not concerned: our Vietnamese holdings are still cheap, high-quality, and growing strongly. For instance, our 14x PE IT distributor grew earnings over 60% in Q4, while the 10x P/E financial services firm grew theirs over 800%. Now the valuations have only gotten more attractive for further position increases.