Silvercrest
Emerging High Conviction

PERFORMANCE COMMENT

The MSCI Emerging Market Index was up 0.6% in USD terms during March but outperformed the MSCI World Index by over 5%, marking another month of relative strength for emerging market equities. Performance diverged across markets, with India leading as the top performer, gaining 9.2% amid improving domestic indicators and foreign inflows. The Philippines, Indonesia and Brazil were also among the top performers, with the market indices up 6%. China continued its recovery, supported by stable currency conditions and selective earnings strength, though late-month profit-taking in tech names capped gains. Taiwan underperformed significantly (-12%), pressured by weakening semiconductor sentiment and ongoing trade tensions.

The Silvercrest–Emerging High Conviction Fund outperformed its benchmark slightly in March, with solid security selection in China and India and underweights in South Korea and Taiwan contributing to the relative performance. The Fund delivered a clear outperformance vs its benchmark in Q1 2025, with strong security selection.

MACRO REVIEW

March was a tale of two halves for the Chinese equity market. The month began on a strong footing as better-than-expected Q4 earnings sparked a broad-based rally, lifting not just the usual Technology leaders but also traditionally cyclical sectors like Materials, Healthcare and Energy. However, sentiment turned cautious after Tencent's conservative 19 March update showed restrained capex, while Alibaba's Joe Tsai later warned of data center oversupply, sparking Tech sector profit-taking. Supportive macro conditions helped cushion the pullback. Treasury yields moderated significantly during the month, with the 10-year UST yield settling at 4.2%, while USD weakness and a stable USD/CNY exchange rate around 7.25 created favourable conditions for offshore-listed Chinese equities. Investor conversations revealed growing confidence in private enterprises' ability to innovate through the current cycle, though concerns are mounting about Q2 macro headwinds from softer export data and escalating tariff risks. Market participants are now looking to the late-April Politburo meeting for potential policy support.

India emerged as Asia's standout performer in March on a combination of improving fundamentals and supportive policy developments. The Reserve Bank of India's proactive liquidity measures and easing of banking sector regulations helped restore investor confidence, while stronger-than-expected January industrial production data (+5% yoy) pointed to gathering domestic momentum. Foreign institutional investors returned as buyers, attracted by upward earnings revisions across sectors and INR stability. February's benign CPI print of 3.6% yoy has reinforced expectations for rate cuts as early as April, though some caution remains after core inflation showed signs of firming.

Elsewhere in Asia, markets showed divergent trends. South Korea's auto sector continued to grow exports year-over-year, though at a slowing sequential pace, with Hyundai and Kia emphasising margin protection over volume growth in their 2025 guidance. Taiwan's market was dragged down by a 12% decline in TSMC shares as AI-related enthusiasm cooled, though shipping companies benefited from global supply-chain disruptions.

PORTFOLIO ACTIVITY

The Fund executed selective portfolio adjustments in March, taking profits from outperforming positions while reallocating to names with more compelling risk-reward profiles. Our China repositioning focused on emerging consumption opportunities. We initiated a position in Chow Tai Fook Jewellery, anticipating a fundamental trough as their innovative fashion gold jewellery products expand addressable markets. Conversely, we exited Zijin Mining to reduce commodity exposure given uncertain macroeconomic demand signals. The Fund also added to Bank Mandiri as the sector was oversold on worries around the setup of the Danantara sovereign wealth fund.

TOP PERFORMANCE CONTRIBUTORS/DETRACTORS

Pop Mart emerged as a key contributor following its strong earnings beat, with better-than-expected growth across both domestic and overseas markets underscoring the appeal of its IP-driven retail model. Samsung Electronics was also a top contributor as the Fund had added exposure to it earlier in anticipation of a recovery in memory pricing and overly pessimistic earnings revisions. ICICI Bank also added value, buoyed by the RBI’s supportive policy stance and reasonable valuations.Trip.com rebounded meaningfully as a contributor, recovering from February’s sell-off on evidence of resilient travel demand and disciplined spending.

On the detractors side, Mercadolibre was a laggard as it fell with the correction in the US Technology sector. CRRC lagged after its Q4 earnings fell short due to slower order bookings – a trend management expects to reverse this quarter. Futu Holdings rounded out the detractors list, pulling back after its strong year-to-date run as investors took profits.

The fading narrative of US exceptionalism has become increasingly apparent to global investors, with markets beginning to price in the potential growth constraints of Trump's domestic policies. This recognition is accelerating capital flows toward diversification opportunities, particularly in regions like Asia, where structural growth stories remain intact. Against this backdrop, we expect lingering uncertainty around US trade policies to continue driving volatility in Asian equities. Our strategy remains disciplined, focusing on companies with durable competitive advantages that can deliver sustainable earnings growth across market cycles. In China, we concentrate on domestic consumption growth, technological leadership and industrial upgrades, with particular emphasis on companies gaining global market share outside US exposure. High-quality, high-dividend-yielding stocks offering attractive total returns through consistent payouts and buybacks also remain a priority. India presents an interesting dichotomy – while near-term growth has moderated, valuations now reflect these challenges. The economy's relative insulation from US-China tensions and its strong long-term fundamentals position it as both a defensive play and growth story. The Asia ex-Japan universe continues to offer exceptional opportunities to invest in world-class companies at reasonable valuations. Despite expected volatility, our focus on high-quality businesses with strong cash-generation and growth potential positions the portfolio to weather near-term uncertainty while capturing the region's long-term structural advantages.

Thank you for your continued support.

Silvercrest Asia Equities team