February 2025
THE CIO’S PERSPECTIVE
The investment community was widely expecting Donald Trump to keep his promise and impose punitive tariffs on imports from China in the days that followed his inauguration as president of the United States. Not only did it not happen, but he even mentioned to journalists a few days later that he was having second thoughts about the whole matter. That was enough for Chinese equity markets to rally strongly during the second half of the month after a 6.8% drop in the first half as markets were bracing for tariffs to be announced. As these lines are written in early February, we now know that it was only a matter of time before tariffs were to be imposed by the US administration on imports from China. At some point in late January, the relationship between China and the United States seemed to have taken a positive turn, Trump even coming to the rescue of TikTok that was facing a forced shutdown for US national security reasons, giving the company a 75-day reprieve to find a US buyer.
The rebound of Chinese equities triggered a renewed flow of institutional money out of India, the pendulum between the two countries swinging in the opposite direction from what it did last year. The Indian market was further hit by the new direction given to the Reserve Bank of India by its recently appointed governor Sanjay Malhotra. He made it clear that he was prepared to adopt a more flexible approach toward the Indian rupee compared to his predecessor. Malhotra has shown openness to letting the rupee move more freely in line with regional peers, while still intervening to manage excessive volatility and prevent speculative attacks. Under former governor Shaktikanta Das, the RBI maintained a tight control over the rupee, which resulted in low volatility in 2023 and 2024. However, since Malhotra took office, the rupee has depreciated by about 2.8% against the dollar, indicating a shift in strategy. The recent weakening of the Indian currency contributed to India’s market softness in January, with the greatest impact seen in mid-caps and small caps.
The end of the month saw the Chinese company DeepSeek emerge as a frontrunner in the Artificial Intelligence race, with a reasoning model (or “foundational” Large Language Models, or “LLM”) that compares favourably to ChatGPT and other LLMs developed by US “hyperscalers” Google, Amazon, Meta and Microsoft, but at a fraction of the costs incurred by those giants, and by using largely low-spec Nvidia chips that are widely available on the market. Over the medium term, being able to develop AI engines at a very low cost can only be beneficial to the public as the use of AI will no longer be the privilege of behemoths with deep pockets. With the possibility to develop performant LLMs for cheap, the next step will be to observe developers create AI-driven applications for mobile phones and personal computers that will help monetize the billions of dollars of investments made so far by those hyperscalers in AI development. Thanks to the open-source feature of DeepSeek, the cost of developing AI-based applications will come down as they become widespread, in a way similar to what Google did to the smartphone market with its Android operating system.
We anticipate the impact in Asia to be largely observed on the hardware side: With numerous AI applications hitting the market at a low development cost and needing not-so-advanced logic and memory chips, will the combination of larger volumes and lower prices be beneficial or detrimental to TSMC, Samsung Electronics and SK Hynix? Will it allow Chinese chipmakers SMIC, Hua Hong and CXMT to emerge as strong contenders in the AI race, or even on a global scale? Noone can tell at this stage. In the meantime, we find it amusing that Nvidia, Microsoft and Amazon already added DeepSeek’s AI models to their offerings at a time when the U.S. government is trying its best to prevent Chinese AI developers from accessing AI technology developed in the U.S.
The emergence of DeepSeek as a low-cost AI engine alongside new regulations passed by the Biden administration a few days before he left office restricting access to U.S. designed AI chips to companies operating either in the U.S. or in any of its 18 designated allies has likely made one victim: Malaysia. As we wrote recently, Malaysia saw U.S. hyperscalers bet big on the setting up of massive data centres in the country to the point that it became the centrepiece of the government of Malaysia’s long term growth plan.
As much as 3GW of IT data centres capacity were supposed to be built in Malaysia in the coming three years, which is equivalent to Meta’s global capacity at the start of 2024. Amazon already announced in October that it would invest $6.2bn in Malaysia through 2038, while Google earmarked $2bn and Oracle $6.5bn. The idea of spending billions of dollars on the setting up in Malaysia of massive data centres focused exclusively on AI has clearly taken a big hit in January.
Going forward, we remain very much focused on the health of the Chinese economy, and unfortunately the signals remain mixed, at best. The fourth quarter numbers saw a rebound, with a real GDP growth of 5.4% YoY, up from 4.6% in Q3 2024. In December 2024 industrial production growth was up 6.2% YoY (vs 5.4% in November) while retail sales were up 3.7% YoY (vs 3.0% in November). These positive numbers were largely driven by trade-in programs that boosted sales of home appliances. Unfortunately, the momentum we observed late last year seems to have evaporated. After three months of expansion, the official PMI shrank to 49.1 in January, down from 50.1 in December, while the Caixin PMI that focuses more on the private sector shrank to 50.1, down from 50.5 in December 2024. New home sales were once again in negative territory in December at -0.6% YoY after a brief uptick of 2.7% in November. Early signs have shown that there was no improvement in property sales in January.
WORDS FROM THE MANAGER

October was not a good montUncertainties prevail at the start of this year. First and foremost, uncertainties about trade tariffs that may (or may not?) be imposed by the Trump administration on the rest of the world has already triggered a wave of intense volatility across financial markets, with a special mention of cryptocurrencies. This volatility is largely driven by the surge of the US dollar in anticipation of the fact that import tariffs will reduce the US trade deficit while having a domestic inflationary impact which may see the Fed pause its rate cut cycle sooner than previously anticipated. The resulting weakening of Asian currencies may in turn have an inflationary impact across the region, especially for oil importers. A strong US dollar will force Asian central banks to think twice before cutting rates, or before trying to defend their currencies by depleting their FX reserves.
The country that is facing the biggest dilemma is probably India: Growth has been slowing down lately, the economy needs stimulation, and the strengthening of the dollar prevents the Reserve Bank of India from cutting rates aggressively as it would exercise more downside pressure on the rupee. India being one of the largest oil importers in the world, it just cannot afford to do so. Nevertheless, we expect the RBI to cut interest rates soon, but in a measured way to minimize the impact on the currency.
The recent intrusion of DeepSeek in the AI space brought an additional level of uncertainties. Investors are gradually shifting their focus from established chipmakers and equipment makers that have long track records of cash flow generation and dominating market share to a small number of AI software companies, typically active in niche markets and still in the process of fine-tuning their business models.
As a result of these uncertainties, most Asian equity markets dropped in January. The Philippines main PCOMP index lost 10.2%, the Thai main SET index lost 6.1%, the Malaysian main Kuala Lumpur Composite index lost 5.2%, the leading Chinese CSI300 index lost 3.0% and India’s Sensex index lost 0.8%. The only markets that performed well were the Korean KOSPI index, up 4.9% in January (albeit following a dreadful performance in 2024), and the Taiwanese main TWSE index that kept its upward momentum, up 2.1% in January. Admittedly China, Korea and Taiwan were on a multi-day Chinese New Year holiday break until the end of the month when the DeepSeek news hit the tape.
CHINA PORTFOLIO
La Francaise JKC China Equity saw its NAV per share gain 1.0% in January when the MSCI China index rose by 0.9%.
The cash position of the fund stood at 9.7% at the end of the month.
The top five best performers in our portfolio in January were internet gaming company Netease (up 16.3%), followed by PDD and JD.com, two e-commerce platforms (both up 15.4%), and by Suzhou TFC Optical, a fibre optic company that is part of the Nvidia supply chain (up 10.3%), and Xiaomi, the smartphone and electric car manufacturer (up 11%).
The bottom performer was SITC International, an intra-Asia container shipping company that saw its share price drop as global freight rates came down when the situation around Yemen and the Red Sea cooled off (the share lost 10.1%). Other underperformers in January were consumer companies China Resources Beer (down 7.1%) and the dairy company Inner Mongolia Yili (down 7.8%), flat glass producer Xinyi Glass (down 8.9%) and Nari Technology, the power grid automation equipment company (down 8.5%).
During the month we exited Xinyi Glass, China Resources Beer, Jiangzhong Pharmaceutical and BOC Aviation while we added CATL, the largest electric battery manufacturer in the world and Pop Mart, a character-based entertainment company that sells products which are very popular among the Gen Z youth across Asia.
ASIA PORTFOLIO
La Francaise JKC Asia Equity saw its NAV per share drop by 1.5% in January when the MSCI Asia ex-Japan index rose by 0.6%.
The cash position of the fund stood at 9.0% at the end of the month.
The performance of our Asia fund was the result of widely diverging trends among Asian countries. The best performers were in Korea, with memory chip manufacturer SK Hynix leading the way (up 14.6%), followed by Park Systems, the Korean atomic force microscope manufacturer that provides inspection equipment to the chip industry (up 11.6%) and Hyundai Electric, the Korean electric transformer manufacturer (up 7.3%). Among the top 5 performers was also Xiaomi, the Chinese smartphone and electric car producer (up 11.0%).
Four out of the five worst performers were Indian mid-caps as the entire sub-sector went through a correction triggered by a renewed trend of depreciation for the rupee and a steep impact on mid-caps when rotation happened in January from Indian to Chinese equities. Tech company Computer Age Management, property developer Oberoi Realty, cable maker Polycab and cash management company CMS Info Systems all dropped between 11% and 29%. In Indonesia, we also saw hospital company Medikaloka Hermina drop by 14.7% after the company disclosed that the government’s Social Security fund was late in paying its dues to Hermina.
During the month the fund exited China Resources Beer, e-commerce company PDD and BOC Aviation while it increased its exposure to the Chinese battery maker CATL, the Taiwanese semiconductor designer Mediatek, and the Indian IT consulting firm TCS (Tata Consulting Services).
OUR ESG ENDEAVOURS THIS MONTH
As we expected last December, January proved to be a tumultuous month following President Trump’s inauguration. Shortly after taking office, the administration announced the United States’ decision to withdraw from the Paris Climate Agreement for the second time. Additionally, the U.S. Federal Reserve exited the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a coalition dedicated to tackling climate-related financial risks. The Fed stated its preference to address these risks independently rather than through international collaboration.
In response to the federal government’s withdrawal from the Paris Agreement, 24 U.S. states came together to form the U.S. Climate Alliance, pledging to uphold the accord’s objectives. Representing a substantial portion of the U.S. economy and population, these states committed to reducing emissions, advancing clean energy, and addressing climate change at the state level. This underscores a significant divide in U.S. climate policy under the Trump administration, with the federal government retreating from international climate agreements and coalitions, while state-level leaders and organizations took proactive measures to combat climate change and align with global commitments.
In January, the European Union also announced plans to simplify sustainability reporting requirements as part of its new competitiveness roadmap. Recognizing the growing burden on businesses, the EU aims to streamline reporting processes, reduce complexity, and enhance clarity while maintaining high transparency standards. Key regulations expected to be targeted for simplification include the EU’s Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and Taxonomy Regulation. These simplifications of reporting duties are greatly welcome by the asset management industry.
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