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July 2024


The main event of the month in Asia was undoubtedly the unexpected results of the Indian general elections that saw Narendra Modi’s party, the BJP, lose control of the Lok Sabha, the lower house of the parliament. Implications will likely be wide.

After a kneejerk reaction that saw India’s main Nifty index drop by 5.9% the day the results were announced, it quickly rebounded to end the month up 6.6% and to be the second-best performing market of Asia in June (after Taiwan which saw its main Taiex index gain 8.8%, driven by TSMC – up 17.7%).

After digesting the news, the market realised that these results may not necessarily be bad news.

Above all, it was a good day for democracy: The risk of India becoming an autocracy has clearly abated. From now on, Modi will have to run the country through a coalition with several allies of various stripes and with agenda that span across the entire political spectrum. Radical policies, including religion-based exclusion policies, may be more difficult to pass and implement going forward. Looking closely at this new coalition, two new “allies” are critical: The Telugu Desam Party from the southern state of Andhra Pradesh and the Janata Dal (United) Party from the eastern state of Bihar, one of the poorest states of India. Telugu Desam, with 16 seats in the 543-seat Lok Sabha, is liberal, pro-farmers and middle class, leaning to the left, whereas the Janata Dal, with 12 seats, is centre-left. The leaders of both parties have long political careers during which they switched political allegiance numerous times for the sake of remaining in power as state chief minister in their respective states. Both men are perceived as being unreliable allies. And both will likely push for decisions that favour above all their own state, if not their own career, in a country that remains fundamentally decentralised.

Looking at the details of the election results, one can only be struck by the fact that the BJP lost 50 seats in rural areas, and only very few seats in urban and semi-urban areas. Until now, India’s high growth under Modi was largely driven by infrastructure investments and by the fast digitalisation of money flows. As impressive the growth numbers have been, the fact is that rural areas were left aside. Unemployment rose from 6.5% pre-Covid to 8.1% last April, while private consumption growth remained lacklustre at around 3% last year.

With power effectively under the control of unreliable kingmakers coming from rural states, we anticipate Modi to sway his agenda towards manufacturing, consumption and employment, with a focus on rural areas. The risk is that he might be forced to implement populist policies, such as cash handouts, that could be good for the poorest Indians, but certainly not for the Indian economy.

A badly needed modernisation of labour-intensive sectors is likely to accelerate, at the detriment of large-scale infrastructures projects piloted by the central government, such as ports, railways and high voltage power lines. Admittedly, the current 34% YoY growth of government capital spending was not sustainable anyway. Industrial modernisation requires flexible land regulations and flexible labour laws that, in India, remain under the authority of each state. Going forward, we can expect more local reforms on these two fronts. Employment should benefit.

One way to accelerate the industrialisation process of the poorest Indian states could be to welcome investments from cash-rich Chinese companies that are eager to move production away from China as a result of de-globalisation and ever-rising tariffs against goods made in China. Chinese companies ready to make that move are not in short supply. But with geopolitics evolving the way it is and the complicated relationship the two countries have had for decades, the Modi government is not open to Chinese investments. Except when the request is made by behemoth companies that need to build new supply chains outside of China, like Apple did last year.

In other words, India’s growth is not expected to come down under this new coalition government, but it will be a different type of growth. The market is telling us that this is not necessarily bad news. And that’s also probably what the governor of the Reserve Bank of India had in mind when he stated recently that “the Indian economy is at the threshold of a major structural shift, moving towards an 8% growth rate on a sustained basis”. If growth remains above 6% per year, within four to five years India’s economy will outgrow Germany and Japan to become the third largest in the world.

Another reason for the Indian equity market to have rebounded so strongly past the election aftershock was that China did poorly. The inverted correlation between the two countries was once again in full display, with investments flowing from one to the other. The MSCI China dropped by 2.8% and the CSI 300 index by 3.3%. Most economic indicators published in June showed no sign of any economic recovery, a credit market at a new low (at 7.0% YoY, M2 growth is at its lowest in modern history), and at best for some indicators some stabilisation: Retail sales growth was 3.4% YoY in May, up from 2.0% in April while the YoY drop in property sales is showing signs of abating while new home prices fell by another 0.7% MoM, the steepest fall since October 2014. Exports were the bright spot, +11.2% YoY in May, up from 5.1% in April, in RMB terms, at a time when Western countries are already up in arms against Chinese exports and reacting by imposing more and more import tariffs.


June was a muted month. The Indian equity market was impacted at first by the general election turmoil but quickly came out of it, ending the month up with a 6.6% gain as mentioned above. Both Taiwan and South Korea did well, driven by a large cap rally. TSMC went up again (+18.2%) and increased its weighting in the MSCI Asia ex. Japan index to 11.1%. It is the largest component of the MSCI Asia ex Japan index (Tencent, the second largest weighting, is less than half at 4.8%). TSMC is half of Taiwan’s total exposure in that index. The second and third largest weightings, Hon Hai Precision and Mediatek, also gained 24% and 13% respectively. All three companies benefitted from strong AI growth and from the ramp-up of new computing products. In Korea, Samsung (+12% this month) is catching up with SK Hynix (+26%) although the latter benefitted much more since the start of the year as it is the sole supplier of revolutionary HBM memory chips to Nvidia, the designer of the graphic processing units that are critical to AI. We have exposure to TSMC, Hynix, Samsung as well as to some of their suppliers in both Taiwan and Korea (Hansol Chemical, Leeno, Chroma).

Hong Kong and China-listed shares were the biggest laggards in the region. Investors are waiting for the Third Plenum of the CCP Central Committee, China’s big policy meeting, even though expectations are not high given the lack of concrete action in the aftermath of other policy meetings held over the past two years. Market rumours about the conference outcome include fiscal reforms, foreign direct investments relaxation and even “hukou” reforms (the “hukou” is the residency right given to all Chinese citizens at birth). Any targeted supportive measures that would help address economic pains including the ongoing property slump, the financial stress of local governments and subdued consumer demand due to a lack of confidence in the future would provide meaningful rescue to sliding share prices.

The first half of 2024 is already behind us. Looking back at our funds performance, we caught up briefly with the benchmark in April but did not manage to keep it up. For the China fund, the performance is most vulnerable to sudden inflows into large cap Hong Kong listed shares given that our exposure is more balanced between Hong Kong listed shares and mainland listed ones. We are working on fixing this issue. As for the Asia fund, our India, Singapore, Indonesia and Taiwan exposure dragged the relative performance the most while our Hong Kong listed shares and our lack of exposure to Thailand, Malaysia and the Philippines contributed to the relative performance. We are in the process of adjusting our portfolio composition in those regions where our performance was the weakest.  


La Francaise JKC China Equity saw its NAV per share drop by 2.9% in June when the MSCI China index dropped by 2.8%.

The cash position of the fund stood at 5.8% at the end of the month.

Nari Tech going up 13%, Fuyao Glass going up 3.4% and SITC going up 6.2% were the biggest contributors. China Resources Beer that dropped by 16.1%, Rianlon that declined by 12.8% and the structural underweight exposure to Tencent due to UCITS regulations that gained 3.7% were the biggest relative performance detractors. On trades, we exited Li Auto and Sanhua Intelligence and trimmed some Zijin Mining and Fuyao Glass. We also increased our exposure to China Resources Land.


La Francaise JKC Asia Equity saw its NAV per share rise by 2.9% in June when the MSCI Asia ex-Japan index rose by 3.9%.

The cash position of the fund stood at 4.1 % at the end of the month.

Voltronic Power that gained 14%, Chroma that gained 14%, and Phoenix Mills that gained 16%, were the biggest performers. On the flip side, China Resources Beer, Yum China and Leeno hurt the performance as they went down by 16%, 11% and 12%, respectively. Regarding trades, we trimmed some Poya International, we added to China Resources Land and to SK Hynix, and we exited GMM Pfaudler and JCHX Mining.


After ESMA’s recent release of guidelines for ESG and sustainability-related terms in the names given to investment funds, Morningstar reported that approximately two-thirds of funds sold in the European Union and labeled as “sustainable” or “ESG-related” would need to either dispose of certain investments or change their names to comply with new anti-greenwashing rules. These guidelines impose investment thresholds and adherence to exclusion criteria in line with Paris-aligned benchmarks. The new guidelines dictate that these funds should only invest in companies that are in line with the Paris Agreement. JKC Fund and its sub-funds are not threatened by such new regulation as our funds consistently meet sustainable investment thresholds as outlined in the fund’s SFDR disclosures.

Following the release in May of China’s action plan for energy conservation and carbon reduction for 2024-2025, specific action plans for four carbon-intensive industries – steel, oil refining, ammonia, and cement – have been released, providing more detailed guidance. For instance, by implementing energy conservation measures, carbon reduction measures and by upgrading to more efficient equipment in the steel industry, savings of 20 million tons of coal and a reduction of 53 million tons of carbon emissions are expected over the next two years.

In the past month, JK Capital deepened its engagement efforts by participating in the CDP Non-Disclosure Campaign (CDP is formely known as the Carbon Disclosure Project, a non-profit organization set up in 2000), an annual event the firm has actively contributed to since 2021. In this round, we led the engagement campaign on behalf of the fund management industry with three portfolio companies (Shenzhou International, Bajaj Auto and Eicher Motors) and have entered discussions with them with encouraging results. The goal is to push these companies to report data on their climate change, forest and/or water impact through the CDP platform.

The information and material provided herein do not in any case represent advice, offer, sollicitation or recommendation to invest in specific investments. The information contained herein is issued by JK Capital Management Limited. To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. 

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