April 2025
THE CIO’S PERSPECTIVE
For reasons largely related to the US government implementing a trade policy that revolves around punitive tariffs, the month of March saw an unprecedented shift in global fund managers positioning as they fled away from the US market in droves and zoomed on European markets and emerging markets. In Asia, it was China, and to a certain extent India, that benefitted the most from these exceptional funds flows.
As reported by Jefferies which quoted a recent Bank of America survey of 171 global fund houses, “fund managers’ US equity allocation declined by a record 40 percentage points MoM to a net 23% underweight in March, the lowest allocation since June 2023. This compares with the record net 36% overweight in December”. It was the biggest variation ever recorded by Bank of America from one month to another. This disaffection towards US equities took place as the US dollar index suffered a large drop, losing 3.5% in March, its steepest correction since July 2020.
In Asia, Chinese shares listed in Hong Kong, so-called H shares, benefitted significantly, but could not sustain their gains as global market pressure due to the upcoming US import tariffs overwhelmed global markets toward the end of the month. The HSCEI index that tracks down mainland Chinese companies with dual listings (in Hong Kong and in Shanghai/Shenzhen) gained up to 9% as of 18th March before returning most of it and ending the month at +1.2% while the MSCI China gained up to 9.9% before ending at +2.0%. In India, the Sensex index gained up to 6.6% and managed to keep most of its gains despite global market turbulences and ended the month at +5.8%.
There were also fundamental reasons for Chinese equities to perform well this month. More and more macroeconomic data are pointing towards a rebound of the economy, while the government laid out big plans to revive domestic consumption. The latest industrial production data for the combined months of January and February showed a 5.9% YoY gain, a slight improvement over the 5.8% gain in 2024, while fixed assets investments rose by 4.1% YoY, up from 3.1% in 2024. Retail sales were also firmer at +4.0% YoY (or +4.4% adjusted by inflation), driven by car sales that gained 14.4% YoY vs 5.8% in 2024. Even property prices seem to have stabilized, being essentially flat since the start of the year in the largest cities. The property affordability ratio is now the highest in nearly nine years: Since the start of Covid in 2020, per capita income rose by 28% while primary market prices have fallen by approximately 7%.
In early March, the Chinese government released its “Special Action Plan to Boost Consumption”. No hard figure was released, but that did not come as a surprise as the report that concludes what is known every year as the Two Sessions always focuses on the bigger picture.
In a nutshell, the priority for this year is to raise personal income. For working people, there will be a sharp upward revision of the minimum salary and a strict enforcement of annual leaves entitlement. For young parents there will be a focus on childcare subsidies alongside free education being extended to kindergarten. For the elderly there will be a rise in pensions and medical insurance alongside the development of a tourism industry specifically focused on the “silver economy”. The whole idea is to restore consumer confidence and reduce the household savings rate that currently runs at 31.7% of disposable income, almost the highest level ever seen. The amount of cash sitting in Chinese bank deposits went up from USD11.7tn at the end of 2019 to USD21.6tn at the end of February 2025. Hence the government’s priority to see this money, or some of it, being spent.
The government also announced that it will dedicate its efforts to the development of specific sectors, in a way reminiscent of the focus it had when it decided to invest in the development of New Energy Vehicles in 2015, with the success we all know. This time the focus will be on autonomous driving, smart wearables, ultra-high-definition video, brain-computer interfaces (i.e. AI), humanoid robotics and the “low-altitude economy”, i.e. electric flying vehicles.
On the AI front, it feels like there is not a single week without a new Chinese Large Language Model being launched, be it by DeepSeek, Alibaba, Tencent, Baidu or one of the many Tier two IT companies that emerged over the past few years. Our attention in March focused on the launch of the latest DeepSeek iteration dubbed DeepSeek-V3-0324 which was made freely available for commercial use (i.e. no license needed) and that can run directly on an Apple Mac Studio with an M3 Ultra chip, i.e. a computer anyone can buy in an Apple store. In other words, this Large Language Model does not need to run on advanced servers located in specialised data centres. AI is fast becoming a commodity, and China is quietly demonstrating day after day that all measures taken by the United States to contain China’s AI development have been fruitless.
We touched last month on Indonesia’s sad return to nepotism and cronyism under its new president Prabowo Subianto. In March the situation got worse with the Prabowo-controlled parliament passing a law that expanded the role of the military in public life. Military officers can now hold civilian jobs without having to resign from the army or retiring. The unanimous passing of this new law triggered large protests in Jakarta as it revived painful memories of events that took place under the Suharto regime and that ended up in with the fall of the military regime.
WORDS FROM THE MANAGER
Monthly Performance
The US dollar correction seen in March brought large inflows to Asia. Aside from China that is discussed extensively above, India also witnessed a change of mind by foreign institutional investors (FII). Net FII flows that were largely negative most of the time since the end of September 2024 turned resolutely positive from 20th March onward. From 1st January to 19th March, cumulative net flows into India were a negative USD16.4bn. By the end of March, that number was reduced to a negative USD12.8bn, testifying to a mindset U turn toward India in the last ten days of the month. That change of mind was not necessarily triggered by any macroeconomic data, but by technical indicators. Indeed the 14-day Relative Strength Index of the Sensex index reached a low of 22.9 in early March, a level last seen in March 2020 when Covid hit India. The fact that the rupee strengthened against the USD by 2.3% also helped.
Looking back at the first quarter, Hong Kong (as measured by the Hang Seng index) was the best performing market in the world, gaining 16.4%. It was driven by the tech sector, itself revigorated by the launch of DeepSeek, and by the very public support given by China’s president to the private sector. Heavyweights Tencent and Alibaba gained respectively 19.2% and 55.3% in Q1. Recent investors in Chinese tech companies were global technology funds relocating away from the US tech sector as the Nasdaq Composite index ended up losing 10.4% in the first quarter. De facto, China has become investible again in the eyes of many global fund managers who reallocated assets to the country. To some extent China may benefit from the political and economic uncertainties that surround the Trump presidency.
In China, the confidence level among the population has decisively improved since the turn of the year, and earnings numbers for Q1 were better than expected. The doom and gloom that was obvious when meeting Chinese businesspeople last year is largely gone. We believe the tech sector rally still has room to go, especially as Chinese AI has proven to be at the cutting edge of technology despite all the measures taken by the United States to contain it. The fact that all Large Language Models developed in China are open-source models will undoubtedly speed up the adoption rate of AI within the entire economy, with a positive impact on economic growth.
Within our coverage, the best performing market in March was India with the Sensex index gaining 5.8%. The worst performing market was Taiwan, the TAIEX index losing 10.2%.
CHINA PORTFOLIO
La Francaise JKC China Equity saw its NAV per share gain 2.2% in March when the MSCI China index rose by 2.0%.
The cash position of the fund stood at 7.5% at the end of the month.
In March we increased our positions in e-commerce companies Meituan, Trip.com and JD.com, in the search engine and AI developer Baidu, and in the app developer Meitu. We took some profit on Zijin Mining, the copper miner that benefitted from the powerful rally of copper price as American traders built up inventories in anticipation of upcoming import tariffs. We also started taking some profit on Pop Mart, the company behind trendy figurines “Labubu” and “Crybaby” that are the craze of Chinese teenagers and that has enjoyed a hyperbolic share price performance.
The best performers during the month were Pop Mart (up 50.1%), Zijin Mining (up 21.5%), Megmeet Electrical (up 20.2%) and Meitu (up 14.9%).
The worst performers were Tuopu (down 8.2%), Nari Technology (down 6.3%), Xiaomi (down 5.2%) and Sanhua (down 4.6%).
ASIA PORTFOLIO
La Francaise JKC Asia Equity saw its NAV per share dropped by 0.4% in March when the MSCI Asia ex-Japan index dropped by 0.2%.
The cash position of the fund stood at 5.6% at the end of the month.
In March we exited Voltronic in Taiwan and BLS in India while we increased our exposure to Hong Kong Exchange, Alibaba, Tencent, Meituan, JD.com in China and to Eicher Motors and CMS Info Systems in India.
The best performers during the month were Zijin Mining (up 21.5%), Rainbow Children’s Medicare (up 15.8%), Eicher Motors (up 14.7%) and ICICI Bank (up 14.7%), i.e. one Chinese and 3 Indian companies. The worst performers were Hon Hai Precision (down 16.8%), Chroma ATE (down 16.8%), TSMC (down 12.9%) and Voltronic (down 9.6%), all Taiwanese companies.
OUR ESG ENDEAVOURS THIS MONTH
March has once again witnessed a wave of pushbacks against ESG initiatives. At the start of the month, the European Commission put forward a proposal to grant automakers an additional three years to meet CO₂ emissions targets. This move is designed to help companies sidestep substantial penalties that were originally scheduled to take effect this year.
In 2023, the EU implemented a set of clean mobility regulations. These included a mandate for a 100% cut in CO₂ emissions for new cars and vans registered in the EU starting from 2035, along with interim emissions reduction targets. Under the existing regulations, automakers would have faced hefty fines. For instance, Volkswagen recently informed analysts that it was likely to be on the hook for over $1.5 billion in penalties in 2025.
As the “ESG” label has become politically charged, particularly in the U.S., global investment professional association CFA Institute will be dropping the “ESG” term in its “Certificate in ESG Investing”, renaming it as the “Sustainable Investing Certificate”. This change aims to more accurately reflect the investment goals the certificate seeks to promote and, more significantly, to mitigate political opposition.
Continuing our coverage from February, the EU Council approved delays in the implementation of key sustainability reporting and due diligence regulations, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM). The delays align with the EU’s “Competitiveness Compass” initiative, which seeks to cut red tape—particularly for smaller businesses. The plan aims to reduce reporting burdens by 25% for all companies and 35% for SMEs, reflecting a shift toward balancing sustainability goals with economic growth.
In late March, the U.S. Securities and Exchange Commission (SEC) decided to roll back its climate disclosure rule which would require publicly traded companies to disclose climate-related risks, a move that experts had already anticipated given U.S. president Donald Trump’s anti-ESG approach. The rule, which had been watered down from its original scope, was challenged in court shortly after it was passed in March 2024. While the regulation has now been officially overturned, major U.S. corporations may still be required to report their emissions due to a California state law that imposes disclosure requirements on all large businesses operating within the state.
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