|Western Union||Money Transfer||USA||8.7|
|Joy Global||Mining Machinery||USA||7.9|
Our INTERNATIONAL managed portfolio follows a long-only, buy-and-hold, equities-centric value strategy. It is intended for investors with at least a 3 to 5 year investment horizon and who seek capital growth at below-market risk.
We sold our positions in Hong Kong based real estate operating companies Henderson Land Development, Wheelock & Co. and Hang Lung Group.
We had previously relied exclusively upon the investment merits of each: skilled management (long histories of successful capital allocation), financial strength (an ability to take advantage of difficult times), high quality assets and steep discounts to net asset values – none of which is diminished today.
The risks apparent from a bigger picture analysis imply we are better off not holding domestic Chinese businesses, be they denominated in CNY or HKD. This is based on the common knowledge that large amounts of centrally directed lending has inflated and continues to inflate aggregate economic output, and that much of this debt is nonperforming (far more than is publicly recognised). We think a financial crisis is highly probable, judging from many episodes in history where unsustainable levels of debt have led to banking crises, sovereign defaults and/or currency crashes.
After further analysis we believe the downside to a foreign (dollar based) investor is too great and our portfolio actions this month have capital preservation in mind. China’s precarious situation poses a real risk but the timing of a crisis is uncertain. We can be best prepared by continuing our search for, and furthering our knowledge of, good businesses which are underappreciated in the market.
Today’s market continues to be driven by a short-term obsession with the interest rate cycle, central bank actions and global growth expectations. We remain committed to long-term thinking and decision making.