Portfolio update March 2022

Disclaimer: This article constitutes the author’s personal views only and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. From time to time, the author may hold positions in the below-mentioned stocks consistent with the views and opinions expressed in this article. I have positions in all of the below stocks at the time of publishing this article. This is a disclosure - not recommendations to buy or sell stocks.

Portfolio update

I enjoyed Pierre Andurand’s recent interview on the Bloomberg Odd Lots podcast. One of his arguments was that even though the war in Ukraine might end, sanctions will remain in place until Putin is gone - or until Western European nations are confident that Russia will not invade another country. It might take years before the sanctions are removed.

So we’ll probably see a protracted period of higher energy and food prices. The beneficiaries of such higher prices are:

• Oil & gas stock and service companies
• Malaysian palm oil-related companies, including plantations
• Indonesian coal miners
• Stock markets in countries that are net commodity exporters. In the Asia-Pacific region, I’m thinking primarily of Indonesia.

Since we’re already one month into the war, this shouldn’t come as a surprise. Perhaps it’s already priced in.

But chances are that earnings surprises will mostly be correlated to developments in either commodity prices or social restrictions related to COVID-19.

• Stocks with positive short-term fundamentals: CNOOC (oil & gas), United Plantations (palm oil), Ichigo Hotel REIT (COVID recovery), Kyushu Railway (COVID recovery), MAP Aktif (COVID recovery)
• Stocks with negative short-term fundamentals: Commodity buyers such as Holcim Philippines (cement plants), Ultrajaya (dairy), Jardine C&C (autos), Okamoto (condoms and household goods)

It’s obvious that the Asian Century Stocks portfolio is not positioned perfectly. Many of the portfolio holdings will suffer from high commodity prices. Then again, transaction costs tend to be around 1% on average so I’m not keen on trading in-and-out of these stocks. That’s why investing in Southeast Asia necessitates a long-term buy-and-hold strategy.

The portfolio is up +1.0% over the past month and up +1.1% since inception. I think the positive contributors were Jardine C&C, CNOOC, Multi Bintang and Sony, while Delfi and Bloomberry Resorts detracted from performance.

I made one switch over the past month:

• I purchased shares in United Plantations, representing 4.3% of the portfolio. It fits perfectly into my stated value-with-a-catalyst strategy, the catalyst here being high Malaysian crude palm oil prices. I also buy into the idea that the shares are cheap because of ESG factors, which is why Malaysia’s Employee Provident Fund keeps on selling.
• I sold a portion of SBS Transit, worth roughly 4.5% of the portfolio. I think the position was just a bit oversized given the risk-reward with some uncertainty about the repriced bus contracts and the size of the reduction in losses from the Downtown Line. I still think the risk-reward skews positively, and the stock is very inexpensive in light of how attractive and stable the business is.

Here is the portfolio as it stands as of 24 March 2022. The cash balance is currently 0.7% and is held in US Dollars and Malaysian Ringgit.