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January 2015

The China Region Fund declined 0.12 percent in January, underperforming its benchmark Hang Seng Composite Index, which rose 2.39 percent. See complete fund performance here.

Strengths

  • Investments in Thailand were among the top winners, as tourist arrivals surprised on the upside in December and January, thanks to lower fuel prices and a looser visa policy for North Asian visitors.  
  • In terms of industry allocation, stock selection in consumer services and sector underweight in energy proved most positive to fund performance. Airlines and airports remained beneficiaries of lower fuel prices, while energy stocks continued to rank at the bottom of the benchmark index.
  • Tencent Holdings Ltd., a Chinese internet entertainment and social media bellwether, was the top dollar contributor with a 17.36-percent gain during the month.

Weaknesses

  • As for industries, property & construction was the largest detractor from fund performance. Profit-taking in Chinese real estate developers and railroad construction companies occurred during the month after decent gains in December.     
  • Select Chinese internet American depository receipts (ADRs) and Macau-exposed telecommunication carriers also made a negative contribution to relative fund performance.
  • Sunac China Holdings Ltd., a leading top-tier city property developer in China, was the worst dollar contributor with a 12.02 percent decline for the month.  

Opportunities

  • China’s first bank reserve ratio cut since 2012 came less than three months after the interest rate cut in November, a strong signal that policymakers are committed to reflating the economy amid deteriorating growth data, accelerating capital outflow and mounting deflationary pressure. Interest rate-sensitive sectors such as financials and property should benefit the most from easier credit conditions.  
  • The European Central Bank’s (ECB’s) larger-than-expected quantitative easing (QE) program should intensify the global quest for yield, to the benefit of higher dividend-paying markets in Asia such as Thailand and Singapore.
  • Philippines’ better-than-expected fourth-quarter GDP growth, stable local currency, strong year-to-date foreign fund inflows and, thanks to falling energy prices, a benign inflation outlook should combine to revive investor interest.

Threats

  • Hong Kong’s retail sales growth unexpectedly turned negative year-over-year in December. The city is scrambling for repeat visitors, as mainland Chinese tourists had been arriving in fewer numbers even before the Occupy Central demonstrations hit late last year, with less spending per person. Chinese outbound tourists traveling farther away from the country may continue to weigh on Hong Kong’s retail sector.
  • Chinese coal demand might remain on a secular downtrend, given a slowdown of economic growth to a new norm and government policy direction for clean energy adoption. Ample coal inventories at Chinese power producers should continue to limit coal price recovery and weigh on investor sentiment towards equities of Chinese coal companies.
  • The ECB’s official launch of its QE program might reinforce depreciation of the euro in the interim and therefore negatively affect Asian companies with significant revenue exposure from Europe. 

Past performance does not guarantee future results.

The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 12/31/2014: Tencent Holdings Ltd. 4.56%, Sunac China Holdings Ltd. 1.71%.

Net Asset Value
as of 02/26/2015

Global Resources Fund PSPFX $6.29 -0.06 Gold and Precious Metals Fund USERX $5.70 0.01 World Precious Minerals Fund UNWPX $4.87 0.01 China Region Fund USCOX $8.33 0.06 Emerging Europe Fund EUROX $6.56 -0.09 All American Equity Fund GBTFX $28.65 -0.10 Holmes Macro Trends Fund MEGAX $20.95 -0.03 Near-Term Tax Free Fund NEARX $2.26 No Change China Region Fund USCOX $8.33 0.06