And BREXIT it was! The market reacted sharply on the outcome of the referendum on Friday 24th of June. However, one week later most emerging markets recovered and closed the month in positive territory as can be seen in the charts of the four TRIC markets, the core of the Eur Asia fund.
In total the fund gained 0,88% in June. Emerging markets proved to be a good diversifier to an portfolio of developed markets. Where Europe lost about 5% of its value and the MSCI World more than 1% of its value emerging markets gained 4%.
Most important development for our fund is the change in attitude of the Turkish government to Russia. The combination of the sanctions of Russia on the Turkish tourism industry in combination with the refugee stream and terrorist attacks was killing for the Turkish economy. At the moment more than 1.300 hotels are for sale, due to bankruptcies, in the Turkish Riviera. This economic pressure made Ankara to apologize for the downing of the Russian jet at the Syrian borderline last year. This move is giving hope to investors, the negative signal for the Turkey markets is broken. At the first of July we took position in the Turkish market.
The development of the Indian market is strong and gaining power every day. For China it is still a bumpy ride. This said, we see that the Chinese equity markets found their bottom. However still volatile we see a huge potential in those markets.
The only market in the Eur-Asian basket with a strong long term trend is Russia. With +18% year to date it is one of the best performing markets of 2016. From inside the country we see the effects of the sanctions. The biggest effect is the growth of the internal markets, primarily the agricultural sector is booming. Russia was used to buy all their agricultural products abroad, now after one year of sanctions Russia is able to produce their own needs. Not only large companies are making profit by this but also local farmers. The lack of diversification was always the weakness of the Russian economy. Years of stimulation programs were not able to bring substantial growth to the agricultural sector, the sanctions proved to be much more effective. For the tourist industry it is a more difficult road. The resorts in Sochi are still not too busy. It will take more time to match the high expectations of Russians which are used to the service, luxury and quality of the resorts in Turkey, Greece, Egypt and the Mediterranean. Into our view the Kremlin is not looking to get rid of the sanctions any soon. For sure they will welcome a lifting of the capital restrictions but we are not sure they are willing to pay for that by lifting the sanctions on agricultural product. The ongoing stream of trade deals between China and Russia takes also away the need for western capital. Last month there was the announcement that Rosneft will sell a 20% stake in its subsidiary Verkhnechonskoy in Siberia, next to this there was a deal for Rosneft of 2.4 million tons of oil to deliver to the Chinese state company National Chemical. It happened during the visit of President Putin to China. During this visit more than 30 trade agreements.