Apollo Investment Management
What's new?

2 Mar 18:
The Apollo Asia Fund NAV fell 0.9% in February, to US$2,334.90; charts.

Air travellers and divers can now monitor South China Sea changes in the new Island Tracker from the Asia Maritime Transparency Initiative. Malaysia's Layang-Layang has been (and remains, as far as I know) one of the best places in the world to see schooling hammerhead sharks.

16 Feb 18:
A Bloomberg article in Nov 2016 on Saipan and its casino, run by Hong-Kong listed Imperial Pacific, was headed 'Big Money, Big Questions...'. One of the original journalists, Matthew Campbell, has now followed up in detail. 'A Chinese casino has conquered a piece of America: Construction workers maimed and killed. Millions paid to the governor's family. An impossibly lucrative gambling operation. And all on US soil.' It should make uncomfortable reading for the US dignitaries who accepted positions on Imperial Pacific's advisory board: former directors of the FBI and the CIA, three former governors including past chairmen of both Democratic and Republican National Committees, and a former military judge - and for any investors who took the involvement of such luminaries as an endorsement. Imperial Pacific used to be known as First Natural Foods. We glanced at it ten years ago on the recommendation of a value investor, and were unimpressed by its frozen products and its promoters. Control later changed hands, but a glance at its Webb-site page should usually have been sufficient to suggest a few questions. Imperial Pacific's executive Shen Yan must have had an interesting career: he was at Deutsche Bank while First Natural Foods was buying its toxic derivatives, and previously at Credit Suisse when they were issuing toxic convertibles. I am intrigued to see that the company currently has a market cap close to US$2bn. It brings to mind the 'rise, fall and possible renewal' at Boten in Laos, once described as the 'bungle in the jungle', where improving infrastructure is reportedly boosting cross-border trade in endangered wildlife, as well as drugs. Meanwhile, US OFAC sanctions against the 'Zhao Wei Transnational Criminal Organization' and King's Roman casino in Laos are being shrugged off with the apparent approval of Lao government officials. Asia is never dull.

15 Feb 18:
'In 2000, a [US commission] noted "No country in East Asia, including China, appears capable of seriously challenging US leadership any time soon unless America, through neglect or indifference, were to create a vacuum". Today, the US position in Asia is considerably weaker. Neglect can be seen in the US decision to withdraw from the Trans-Pacific Partnership. Indifference can be seen in the absence of a positive US economic vision for the region... the best US response is a compelling US economic vision, resourced strategically and sustained over time'... Jonathan Hillman's assessment of 'China's Belt and Road Initiative: Five Years Later'.

'Implicit in China’s offer to let each [country] "choose their own development path" is a rejection of supporting democracy, and as a corollary, of the related norms of rule of law, respect for human rights, and fundamental freedoms. The path that the Chinese regime has chosen for itself - a disinhibited authoritarian one-party system fully integrated into the global economy, showing no intention of evolving into a liberal democracy - is now being offered as "a new option for other countries and nations who want to speed up their development while preserving their independence".' Nadège Rolland, Examining China's "Community of Common Destiny", describes a change of great interest to leaders in several of the markets where we invest. For clues as to implications, the discussions on Power 3.0 may be worth following. The introduction notes that ' Modern authoritarianism now harnesses the features once chiefly thought to empower democracies - the interconnected economic and financial system, ubiquitous communication networks, international norms and institutions, global media, education, and culture. In doing so, these regimes have in some ways leapfrogged the capabilities of democracies, whose inherently porous, transparent, and networked qualities have been easily exploited.'

Bill Bishop writes a free weekly, Axios China, but his Sinocism China Newsletter is more frequent and more detailed - and is offering a Year-of-the-Dog discount on subscriptions until 17 Feb. Good reading.

We live in interesting times... and wish continued prosperity and good health to our readers in the year ahead.

9 Feb 18:
John Hempton writes about the unintended consequences of moves to expose short sellers, and the threats he received after writing about China Agritech: 'Nasdaq and the New York Stock Exchange (and possibly Herbalife) team up to help organised crime'.

2 Feb 18:
The Apollo Asia Fund NAV rose 1.3% in January, to US$2,357.01, lagging a surging index; charts.

22 Jan 18:
To our growing list of explanations for lacklustre productivity growth around the world, we in Malaysia can now add capricious prosecution and endless court cases, with a disturbing pattern of cases thrown out by lower courts on apparently common-sense grounds being subject to repeated appeals by the prosecution and dragged out for years. The important news site Malaysiakini is in danger of being closed ahead of the general election: Mariam Mokhtar explains this case. The right of journalists to report factually on events and press conferences apparently now needs to be defended, and any spread in the 'impression of a pro-government court whose decisions are politically motivated, and whose ultimate goal is to muzzle' could be immensely costly. The once famously independent press and television channels of the Philippines are under attack, and freedom of expression is threatened in too many Asian countries. A diverse flow of information is the lifeblood of markets; inadequate information is a danger to efficient capital allocation; and unpredictable legal systems will increase the cost of capital.

19 Jan 18:
The prevalence of fake products is becoming a big risk to the Amazon business model, as well as to brand-owners (and customers), according to the latest in an excellent series of articles on the subject by Wade Shepard. (The anomaly by which the US Postal Service has been delivering packets from China for much less than domestic postage rates is already changing due to new UPU tariffs, although the impact is apparently hard to quantify.)

'The world is in chaos, giving the Communist Party a historic opportunity to make China great again and reshape the world order', according to a high-profile article in the People's Daily, reported by the SCMP. Brahma Chellaney explains the dangers of China's aggressive tactics over dam-building and river water.

12 Jan 18:
The 4Q report has been posted: 'Remodelled landscapes'.

4 Jan 18:
The Apollo Asia Fund NAV rose 2.2% in December, to US$2,327.60; charts.

22 Dec 17:
The tiny Swedish municipality of Lysekil is about to let a controversial Chinese businessman with strong military / party links build the largest port in Scandinavia, in an environmentally sensitive fjord and strategic location, and neither Sweden's central government nor the EU have any right of review, according to this article which seems so extraordinary as to have a ring of truth... ?

18 Dec 17:
Muzzle the messenger: a Hong Kong court blocks short seller Emerson Analytics from issuing any further reports on nation's largest aluminium smelter, China Hongqiao. How the court proposes to enforce such an order against an anonymous group of authors is unclear, and a gag order to protect a listed company against legitimate questions seems bizarre. Eroding the freedom of analytical expression will not improve China's capital allocation. Emerson's reports have raised good questions, and their hit rate with earlier analyses suggests to us that they are providing a valuable public service. Thanks to GMT Research for highlighting.

13 Dec 17:
'The scale and scope of Asian and African new cities is nearly incomprehensible in the current Western view of development', notes Wade Shepard. His article on the many new megacities explains the powerful short-term drivers of this global building boom. Has anyone tried to analyse the aggregate environmental and resource costs, and the risks to our ecological support system? or the long-term economic impact of so much privatisation of the commons?

4 Dec 17:
The Apollo Asia Fund NAV rose 1.6% in November, to US$2,276.67; charts.

24 Nov 17:
The HKEX consultation on capital raising is due to close today: David Webb requests submissions, or support for his views - noting quite rightly that in markets like ours, 'few things are more important than pre-emptive rights and proper capital discipline'. In an earlier article, he makes the case for INEDs to be truly independent - or if HK's current requirements remain in force, dropping the pretence of independence.

2 Nov 17:
The Apollo Asia Fund NAV rose 0.2% in October, to US$2,239.97; charts.

16 Oct 17:
The 3Q report discusses US dominance of the international payment system, and the likely eventual emergence of Chinese and Russian alternatives.

9 Oct 17:
David Abulafia discusses 'proto-globalisation' in a succinct summary of the overland and maritime silk routes: 'How China's first silk road slowly came to life - on the water'.

3 Oct 17:
The Apollo Asia Fund NAV rose 1.8% in September, to US$2,234.63, fractionally ahead of the previous peak reached in June; charts.

8 Sep 17:
Wade Shepard provides an excellent overview of 'China's seaport shopping spree: what China is winning by buying up the world's ports', suggesting the formation of a 'new geo-economic paradigm'.

Tim Johnston's paper for the Australian Strategic Policy Institute, 'The strategic risks of East Asia's slowing economies', may be of particular interest in relation to Southeast Asia, drawing attention to long-term political developments which are sometimes overlooked. Investors may wish to take note, as 'the blurring of the lines between the political and economic elites means that any anger of the politically dispossessed is just as likely to be aimed at economic targets as at political figures and institutions.'

7 Sep 17:
Professor Gomez was interviewed on Malaysia's BFM radio about 'Minister of Finance Incorporated' (podcast). The book focussed mainly on the largest companies under the seven GLICs: in 2013 the top 35 listed GLCs represented 42% of the market capitalisation of Bursa Malaysia. His students are now looking at another 900+ GLCs, companies controlled by state governments, and companies controlled by other ministries, and expect by next year to have expanded their network map. They recommend dispersion of power, and supervision by effective parliamentary committees: their research may provide useful ideas to reformers within the system. Prof. Gomez is also keen to debate the appropriate role and size of the public sector, and the protection of a private sector in which independent SMEs can flourish.

5 Sep 17:
The Apollo Asia Fund NAV fell 0.5% in August to US$2,194.89; charts.

'Malaysia's political economy has quietly undergone a major transition that has escaped public attention. Corporate power has shifted from UMNO and well-connected businessmen to the government', notes a remarkable new book, 'Minister of Finance Incorporated', written by a team led by Professor Terence Gomez. 'Corporate wealth is now heavily situated in the leading publicly listed GLCs, controlled through block shareholdings by GLICs under the jurisdiction of the Minister of Finance.' 'If UMNO members once had many sources of patronage, they now have only one source if they wish to obtain accesss to federal government-generated economic concessions. This is profoundly problematic in terms of public governance as the Minister of Finance [since 2001] concurrently holds the position of Prime Minister'. This anomaly is partly due to the unintended consequences of past reform efforts, as well as to reform promises unfulfilled, but structural reform is recommended. The history is fascinating, and for a book based on the compilation of prodigious quantities of data it is a remarkably good read. Amazon is currently listing it at US$83.11 plus p&p. Support independent publishing and bookselling: buy it from the source - the list price of RM45 is equivalent to US$10.55!

7 Aug 17:
If you own Hong Kong shares, directly or indirectly, read David Webb's 'One Board, One Regulator'. Under current exchange management, the risks to your prosperity are rising. David's suggestions for a better market are excellent, and would improve capital allocation for the economies of the catchment area as well as market efficiency for investors.

3 Aug 17:
The Apollo Asia Fund NAV fell 1.2% in July to US$2,205.38; charts.

28 Jul 17:
We recently learned a new four-letter word: OFAC - the US Office of Foreign Assets Control. Last Saturday one of our holdings, CSE Global Ltd, announced that it had agreed to pay US$12.03m, 7% of its shareholders' funds, to the US Treasury, to settle its potential civil liability for alleged violations of US sanctions relating to Iran. CSE and its subsidiary, both registered in Singapore, were working perfectly legally in Iran, with non-US counterparties. Their mistake was to make some payments to these international suppliers in US$, and to do so through a bank (a non-US bank, in Singapore) to which it had undertaken to avoid any Iran-related transactions. OFAC's Enforcement Information and Settlement Agreement refer to US$ payments totalling US$11.1m, and a potential penalty of US$38.2m. This amount - more than three times the payments in question, a huge multiple of any profits which might have been expected on the transactions, and 19 times the previous week's claim against Exxon - seems disproportionate, to put it mildly. CSE agreed to settle 'as the alternative would have been a costly and lengthy litigation in the United States, which would take up much of management time and resources, the outcome of which is not at all certain'. Given the current situation, we support that decision. We also wonder about the new incentives to find alternative currencies and payment systems with which to conduct international trade, and what the long-term consequences may be.

We will therefore watch with more than usual interest the challenge by Exxon to its OFAC penalty claim: 'OFAC seeks to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today... OFAC’s action is fundamentally unfair'. We do not usually read court filings: Exxon's is bracing.

After noting threats to freedom of expression in many other Asian countries, I find it encouraging to note both the Singapore public response and this interesting article in the Straits Times: 'National Arts Council faces online backlash...' for its lukewarm compliments to the award-winning Sonny Liew. For anyone yet to read 'The Art of Charlie Chan Hock Chye', here's one recent comment on 'layers upon allegorical layers of storytelling and critical insight... national history conveyed through the art of comics'.

27 Jul 17:
The Public Company Accounting Oversight Board in the US has revoked the US registration of Crowe Horwath (HK), for following the instructions of the Chinese Ministry of Finance on release of documents relating to audit of a PRC company listed in the US. The PCAOB says that 'non-US legal obstacles do not create an exception to a registered firm's obligations'. In this war of will between superpowers, any Hong Kong company would have to defer to China. Paul Gillis thinks the US action justified, but is 'disappointed that they do not pick on someone their own size. Most of the market capitalization of Chinese companies listed in the US belongs to companies audited by the Big Four, yet the PCAOB seems unwilling to take these firms on.'

'Good for Alibaba? SCMP quashes column on Xi-linked tycoon' - but Asia Sentinel has published it.

26 Jul 17:
'Indonesian president encourages extra-judicial killings (foreigners preferred)', notes Elizabeth Pisani; Willy Wo-Lap Lam writes on how 'Beijing harnesses Big Data & AI to perfect the police state', and why your Chinese counterparts may not have heard of Liu Xiaobo.

21 Jul 17:
'Forbes magazine dumps an article on an influential HK tycoon' - but Asia Sentinel has stepped in to republish it, adding further context and concerns. The combined report notes that 'the continuing tightening of the noose around democratic practices in Hong Kong now appears to be playing itself out in the New York-based Asia Society, the prestigious nonpartisan educational organization dedicated to promoting mutual understanding between Asians and the United States, and its billionaire Hong Kong chairman' [Ronnie Chan of Hang Lung Properties], and asks 'whether the Asia Society headquarters in New York, including its Co-Chair and 66 trustees, are complicit in what appears by its repeated programming decisions in Hong Kong, to be amplification of Chinese government propaganda'. It notes Chan's connections 'at Harvard University in Cambridge Massachusetts, the University of Southern California in Los Angeles, the Peterson Institute for International Economics in Washington DC, the World Economic Forum in Switzerland, the East-West Centre in Hawaii, and the Council on Foreign Relations in New York and Washington DC' and the suspicion that 'these connections are facilitated by donations or the hope of donations... the Chan family, through its Morningside Foundation, donated $350 million to Harvard University... the largest ever single donation to Harvard.' Options for remedial action by the Asia Society and its illustrious trustees are suggested, in the interests of democracy, free speech, their own reputations - and a more interesting Asia Society.

Asia Sentinel also explains a new loss to investigative journalism and critical reporting, the takeover of the Philippine Daily Inquirer, 'arguably the country's most important newspaper': 'Philippines' Duterte claims a crusading newspaper's scalp'.

18 Jul 17:
The 2Q report touches on Chinese regional investment, and control of strategic territory over the last two millennia.

11 Jul 17:
Michael Vachon, an advisor to George Soros, requests that we spread the news of the anti-Semitic, xenophobic, anti-Soros advertising campaign launched by the government of Hungary: 'Darkness Falls'.

4 Jul 17:
The Apollo Asia Fund NAV rose 4.8% in June to US$2,231.09, a new high; charts.

29 Jun 17:
Following the publication of the annual BP Statistical Review of World Energy, sites providing helpful graphical analysis of the data include crudeoilpeak.info, Energy Matters (euanmearns.com), and the Energy Export Databrowser.

2 Jun 17:
The Apollo Asia Fund NAV rose 3.2% in May to US$2,128.89, very slightly above the previous high; charts.

15 May 17:
The 2016 report of income for UK Reporting Fund purposes is now available here; the page listing all reports (starting 2013) is www.apolloinvestment.com/UKreportingfund.html.

3 May 17:
The Apollo Asia Fund NAV rose 1.6% in April to US$2,062.85; charts.

9 Apr 17:
The 1Q report discusses business risks under capricious rulers, and a regional stock exchange seeking suggestions for improvement.

4 Apr 17:
The Apollo Asia Fund NAV rose 5.2% in March to US$2,030.55; charts.

1 Mar 17:
The Apollo Asia Fund NAV rose 3.3% in February, to US$1,930.46. Charts will be updated later in the month.

23 Feb 17:
Returning to the topic of Disappearing Hills, a New York Times article mentions more - in Cambodia, where iconic limestone karst scenery and undocumented ecosystems are being quarried by joint ventures with the top Thai cement companies: 'A race to document rare plants before these cliffs are ground to dust'.

A more hopeful message comes from Derek Byerlee, author of a new book on tropical oils, interviewed here: 'What happens when the soy and palm oil boom ends?' He envisages ongoing demand growth, but at a slower pace, allowing cautious optimism that the environmental impact may be reduced by better management and prioritisation of land use. Poor governance in areas like Kalimantan and West Papua make this challenging, but 'the zero deforestation commitment by big traders of palm oil is a major breakthrough' and 'new technologies for supply chain management and real-time monitoring of deforestation improve the chances for success'.

Thought-provoking charts on the demographic transition under way in China and worldwide are provided by Chris Hamilton on the Econimica website, in this and earlier postings.

The depressing news of the conviction of Lena Hendry for organizing a private showing of a human rights documentary, under an act which apparently prohibits possession of a film without government approval, was accompanied by comment on Malaysia's slide down the rankings of the World Press Freedom Index. The free flow of information is vital to an investment management firm, and to efficient capital allocation for a country, so we looked at the rankings. Disconcertingly, in the 2016 ranking, most of the countries in which we hunt for investments are ranked between 130 and 176 out of 180. (The only exceptions are Japan, Australia, and Hong Kong for now.) Alarmingly, over the 10 years since 2006, declines in this group have outnumbered improvements by 9 to 3. Improvements were in Myanmar, the Philippines (we'll see if that lasts), and Pakistan. The fastest slump has been in Malaysia, from 92 to 146. Forward-thinking governments might wish to encourage a well-informed workforce.

6 Feb 17:
The Apollo Asia Fund NAV rose 3.0% in January to US$1,868.62; charts.

Inside Indonesia has a special edition discussing an urgent need for environmental education. This would be relevant to many countries; sharing best practice on educational approaches and resources would make sense.

16 Jan 17:
A Mongabay article on the controversial Don Sahong dam project asks how much the Lao government is risking for hydropower. It has excellent links, such as this stunning map of the many regional hydropower projects.

The 4Q report discusses PNJ, Vard, Daibochi and Pure Circle.

4 Jan 17:
The Apollo Asia Fund NAV fell 0.4% in December to US$1,814.41; charts.

Claire Barnes

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