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Prudential Pacific Markets Fund - News
Prudential Pacific Markets Fund
Prudential Portfolio Managers Unit Trusts Ltd.
Prudential Pacific Markets Fund
Prudential Pacific Markets comment - Dec 10
Monday, 7 March 2011 Fund Manager Comment
Most Asian markets outside of Japan advanced in the fourth quarter from the previous three-month period, extending gains for a second straight quarter. Favourable macroeconomic data from the region and the US boosted confidence in a recovery in 2011 and dimmed prospects of a double-dip recession. The US Federal Reserve's second round of quantitative easing, dubbed QE2, helped offset concerns over European sovereign debt issues and tension between North and South Korea.

The FTSE Asia Pacific ex-Japan Index generated healthy returns in sterling terms, with Pakistan leading gains followed by Taiwan and Korea. Weaker areas included Indonesia, India and the Philippines.

The Fund was in line with the index over the quarter, with stock picks in construction and materials bolstering performance, while choices in general financials held back returns.

Korean-listed GS Engineering & Construction and Indian aluminium maker Hindalco Industries lifted performance during the quarter. GS Engineering & Construction rallied on the back of a stronger-than-expected flow of overseas orders, while Hindalco advanced on better than-predicted results at its Novelis unit. A holding in Golden Agri-Resources, Indonesia's largest palm oil plantation company, supported performance as its shares outperformed amid the buoyant crude palm oil price environment.

A position in Largan Precision proved beneficial. Taiwan's Largan, which makes lenses for cameras in mobile phones, reported a good third-quarter performance and gave upbeat guidance for the final quarter of 201 0 and the first quarter of 2011 as it benefits from a shift among smartphones towards higher-quality optical lenses. Cnooc, China's biggest offshore oil producer, also bolstered performance as it benefits from rising oil prices and higher production.

Detractors included LlC Housing Finance and Focus Media Holding, neither of which are held in the index. LlC Housing Finance ended its sixth consecutive quarterly gain as investors digested bribery charges against its chief executive and as a new CEO took charge. Meanwhile, Chinese advertising company Focus Media lagged in the quarter as initial public offerings in the Internet space took interest away from the company. Focus Media was also hurt because of investor speculation about a write-off, which the company dismissed as untrue. The fund manager believes that Focus will benefit from its expansion efforts.

Hankook Tire weakened performance as its shares lagged on concerns over the impact of higher rubber prices on earnings. The fund manager thinks that Hankook is still a good growth company to own in Korea. Finally, Henderson Land Development also dampened performance as its shares lagged following the Hong Kong government's measures to curb the rise in property prices.

We believe Asia ex-Japan economic growth will exceed that of the world's developed markets in the coming few years, led by China and India. We believe also that the US in 2011 may begin exhibiting enough of a recovery to boost domestic demand for Asian exports. Inflationary pressures will persist in the emerging markets.
Prudential Pacific Markets comment - Jun 10
Thursday, 9 September 2010 Fund Manager Comment
Fund manager's feedback
Asia ex-Japan s stockmarkets declined in the second quarter as investors worried about sovereign debt risk and troubled banks among peripheral European economies. Sentiment was also hurt by a clampdown on lending in China and the sinking of a South Korean warship by North Korea. In this environment, the weakest areas were Taiwan, Korea and Hong Kong, while stockmarkets in Indonesia, the Philippines and Malaysia were the strongest. The Fund underperformed its benchmark with performance restrained the most by asset allocation to and stockpicks within the industrial metals sector. Holdings in construction/materials stocks also hurt. However, stocks in the oil & gas and fixed-line telecommunication sectors contributed positively to the Fund's performance.

Key Contributors to Fund Performance
Hankook Tire, Westpac Banking and China Unicorn (Hong Kong) were the largest contributors to the Fund's relative performance against the benchmark. Hankook and Unicorn were overweights that outperformed the region, while Westpac was an underweight that underperformed. The fund manager sees Hankook as one of Korea's best growth stories. Cash flow for the world's seventh-largest tire maker is likely to keep improving and product price increases are narrowing the gap between Hankook and its global competitors. Unicorn, which offers mobile phone services in China, outperformed sharply as the company's rollout of a third-generation network triggered notable gains in market share, revenue and subscribers. Meanwhile, Westpac suffered, along with Australia's other banks, from investor concerns about sovereign debt and banking problems in Europe. Worries about the results for the six months to March 2010 of Australia's banking sector also hurt the stock.

Key Detractors from Fund Performance
GS Engineering & Construction, Macquarie Group and Rio Tinto were the largest detractors. Each was an overweight position that underperformed the region. The fund manager likes these stocks despite the temporary setbacks. GS Engineering & Construction, based in Korea, suffered from concern about the sluggish domestic housing market and the cancellation in the Middle East of projects in which the company had been interested. Nevertheless, the fund manager is drawn to the company's valuation and he sees promise in its overseas ambitions. Australia-based Macquarie suffered the same fate as Westpac, as discussed above. However, Macquarie is Australia's leading investment bank and the fund manager expects profitability in 2010 to benefit from the group's numerous acquisitions and a likely absence of write-downs. Rio Tinto is a leading Australian mining company that suffered from the correction in recent months of many commodity prices. The fund manager expects the company to benefit from a decision by Australia's new Prime Minister, Julia Gillard, to scrap the 40% super profits tax on mining that had been favoured by her predecessor, Kevin Rudd. Ms Gillard prefers a lower tax rate.

We expect Asian ex-Japan economic growth to exceed that of the world's developed markets in the next few years. We will monitor the gradual withdrawal of economic stimulus measures throughout the region. It is likely that China can continue to stimulate its economy. This, and the possibility that Beijing might slowly ease its tight monetary policy if inflation is benign, may well help power the region's expansion.
Prudential Pacific Markets comment - Dec 09
Friday, 19 March 2010 Fund Manager Comment
Fund manager's feedback
Stockmarkets in Asia ex Japan rose in the fourth quarter, as investors grew increasingly confident that the region's governments would not curtail their economic stimulus spending, even though Australia and China began tightening monetary policy as recovery started setting in.

The Pacific ex-Japan region made healthy gains in sterling terms in the fourth quarter, led by Singapore, the Philippines and China. Korea and Thailand rose the least. No market lost ground.

Against this backdrop, the trust underperformed its benchmark, with stock selection in the travel/leisure, general retail and non-life insurance sectors holding back performance. However, selection among mining, media and software/computer stocks contributed positively to the fund.

Key Contributors to Fund Performance
Axa Asia Pacific Holdings, Rio Tinto and Tata Consultancy Services were the top contributors to the fund's relative performance against its benchmark. Each was an overweight position that outperformed its domestic market as well as the region.

Australia-based Axa Asia Pacific is a life insurance company active in its home country and Asia. The company's share price climbed as the result of a takeover battle launched by AMP, an Australian wealth manager, and backed by Axa, a French company that owns 54% ofAxa Asia Pacific. National Australia Bank entered the fray in mid-December with a higher offer for Axa Asia Pacific.

Rio Tinto, an Anglo-Australian company, is benefiting from a cyclical-stock rally. Rio is the world's second largest mining company and is involved with a variety of products, alumina, aluminium, copper, gold, iron ore, thermal coal and uranium. The company used a US$15 billion rights issue to ease an overgeared balance sheet and is moving to establish an iron ore joint venture with BHP Billiton, another Anglo-Australian mining giant.

Tata Consultancy is among India's largest and oldest information technology services businesses. The company built its reputation on large turnkey projects and fixed-price contracts and fields an extensive global marketing network.

Key Detractors from Fund Performance
Positions in the Macquarie Group and Unitech were among the larger detractors from the fund's performance. Each underperformed its domestic market as well as the region. However, the fund manager likes these stocks despite the temporary setback.

Shares in Australian investment banking and financial services company Macquarie Group declined on the back of disappointing first-half results. However, the fund manager expects that profitability will ultimately improve and he supports the company's effort to become a global broker.

Unitech lost ground after having risen since early 2009. The fund manager expects this pan-India real estate developer to benefit from a strengthening of the domestic property market. The company specializes in homes that are priced for the middle class.

Investment outlook
We expect Asian ex-Japan economic growth to exceed that of the world's developed markets by around 3% per annum in the coming few years, led by China, India and Indonesia. We believe the medium-term outlook for the region's economies and markets is positive.
Prudential Pacific Markets comment - Sep 09
Thursday, 17 December 2009 Fund Manager Comment
Ex-Japan Asia's stockmarkets climbed in the third quarter to levels that had not been reached since before the 2008 collapse of Lehman Brothers. Equity markets were lifted by upbeat corporate earnings and economic data and a belief that the worst of the global economic crisis had passed. Indonesia, Korea and Australia led the region higher during the quarter, while the Philippines, Hong Kong and China rose the least, although no market lost ground.

The trust outperformed its benchmark, helped by stock selection among general financial companies and banks. However, stock picks in industrial metals and personal goods companies held back returns.

Australia's Macquarie Group and the Australia and New Zealand Banking Group (ANZ) were among the top contributors to the trust's relative performance against the benchmark. Each was an overweight position that outperformed the broad Australian market as well as the region.

Shares in the Macquarie Group rose on a belief that Australia's leading investment bank had endured the global financial slump and would enjoy an improvement in business. The fund manager believes that the slump marked a turning point for Macquarie, which has grown from a niche operation into a larger entity that can benefit in the current cycle. The fund manager believes the bank has ample cash.

Meanwhile, ANZ has ambitious plans to grow in Asia, particularly China. Furthermore, Australia's fourth-largest bank appears keen to use its surplus capital to make acquisitions from distressed global banks. ANZ disclosed in August that its impaired assets have been growing at a lesser rate than those at other big Australian banks and that growth in past-due loans had been held in check. The fund manager believes that the bank is well capitalised.

China Zhongwang and Far Eastern Textile were among the larger detractors from performance. Aluminium goods manufacturer China Zhongwang, which is not held in the benchmark, underperformed the broad China market as well as the region. China Zhongwang has been hit by profit taking and short selling from hedge funds. In addition, investors were troubled by newspaper reports that the company's 10 largest customers had not placed any orders during 2008. However, the company rejected the reports as groundless. Despite the recent weakness, the fund manager expects the company to gain from Beijing's economic stimulus spending.

Like others in the personal goods sector, Far Eastern Textile underperformed the broad Taiwanese market. The company is involved in polyester, telecommunications and real estate and the fund manager expects that the company's property business will benefit from the warming of Taiwan-China relations. Furthermore, he foresees a long-term decline in raw material costs for the polyester business. Despite these temporary setbacks, the fund manager continues to favour the holdings.

Investment outlook
We believe that ex-Japan Asian economic growth will probably exceed that of the developed markets by around 3% per annum in the coming few years, led by China, India and Indonesia. We believe also that equities in the region remain attractive for the medium term.
Prudential Pacific Markets comment - Jun 09
Wednesday, 23 September 2009 Fund Manager Comment
A rebound in global markets began in March, based on optimistic economic news, and continued to gain momentum into April and May. Markets benefitted from economic data which revealed a slowdown in the pace of decline in China and the us. The unveiling of Japan's long-awaited additional stimulus package added to investor sentiment. Risk appetites increased, commodity prices strengthened and Asian markets rallied.

Against this backdrop, the Fund outperformed its benchmark. India's ICICI Bank ADRs and IVRCL Infrastructures & Projects, together with Australian Macquarie Bank, were among the larger contributors to relative performance.

In India, the market rallied on the election victory of India's ruling party as it raised hopes of political stability, a revival in foreign direct investment and economic growth. Financials outperformed, as did the Fund's overweight holding in ICICI Bank. The country's second largest bank is moving away from risky lending and toward improved margins, lower costs and more fee-generating activities. IVRCL Infrastructures & Projects, with its established position in the Indian construction sector, is a frontline beneficiary of increased infrastructure initiatives from the new reform-oriented national government. Investors reacted positively to news of IVRCL's growing order book.

In Australia, international company Macquarie Group (formerly Macquarie Bank) saw its share prices rally as market confidence was boosted by reports of an unexpected surge in Australia's economic growth in the first quarter. Viewed as better value than the national banks, Macquarie's recent fund raising further strengthened the group's liquid balance sheet, enabling the group to make opportunistic acquisitions.

On the downside, Origin Energy, Taiwan Cement and Larsen & Toubro were among the larger detractors from relative performance. The Fund suffered from overweight positions in Taiwan Cement and Origin Energy, Australia's major energy utility company, as old economy stocks underperformed their broad domestic markets following strong, earlier gains. Investors had reservations about Taiwan Cement facing possible margin pressure due to its low-margin export business. Australian investors were concerned after Origin made a second reduction in earnings guidance as its New Zealand unit predicted a larger slump in earnings in the current year. The Fund manager continues to like these stocks despite the setback in the quarter and believes their valuations are attractive.

In India, not holding Larsen & Toubro proved detrimental. The engineering and construction major returned to favour on the view that its exit from the Satyam Computer bidding process and its guidance for strong order inflows in the current financial year have removed the two largest obstacles for the company.

Investment outlook
The fund manager believes that Asia ex-Japan equities are attractive over the medium term and that the region's economic growth prospects are stronger than those for the developed economies. Though the global economic slowdown has engendered a downturn in Asia, the economic stimulus measures around the region, particularly in China, are starting to work. The availability of credit has been improving slowly.

Asian equities recovered much of their past undervaluation during the second quarter and moved closer to fair value. The fund manager believes also that some degree of regional economic decoupling from the global slowdown will become visible over the next 18-24 months. Consensus earnings forecasts are being raised. The fund manager expects companies that serve domestic demand to do well.
Prudential Pacific Markets comment - Mar 09
Thursday, 11 June 2009 Fund Manager Comment
Stockmarkets in the Asia ex-Japan region seesawed in volatile trading in the first three months of 2009. The quarter began with sharp falls in equity markets before recovering their losses by the end of March. As a result, Asian ex Japan equity markets were largely unchanged over the quarter. Throughout the period, governments and investors wrestled with the global economic slowdown and possible methods of recovery. The turning point came as the US government announced a plan to rid banks of as much as US$1 trillion in toxic assets and Asian governments persisted with monetary and fiscal stimulus measures. The fund underperformed the benchmark.

ICICI Bank and AXA Asia Pacific Holdings were among the larger detractors from relative performance against the benchmark. India-based ICICI Bank declined sharply, pressured by a possible liberalisation of India's banking sector in the second quarter. This would add to the already tough operating environment facing domestic banks. However, the fund manager remains comfortable with the holding as it is India's largest private sector bank and a leader in retail banking.

Finally, AXA Asia Pacific is Australia's second largest life insurer, which carries out most of its business in the domestic market and Hong Kong. The stock declined due to investors' concern about the company's capital adequacy. However, the fund manager sees promise in AXA's effort to expand outside its two main markets.

On the positive side, holdings in Rio Tinto, Far Eastern Textile and the Bank of China were among the main contributors to relative fund performance. Australia-based Rio Tinto is a leading diversified mining company with big interests in commodities. The company's share price climbed sharply on expectations that the Australian government will approve a US$19.5 billion capital injection by Rio's biggest shareholder, the Aluminum Corp of China, or Chinalco. The fund manager believes the deal would lessen Rio's debt burden.

Far Eastern Textile is a Taiwan-based conglomerate with interests in polyester, telecommunications, property and cement. The fund manager expects the company's restructuring of its loss-making polyester business will succeed and he believes the construction of a telecom park will unlock the value inherent in Far Eastern's landbank. Meanwhile, the Bank of China is one of the mainland's leading financial institutions and perhaps the most internationally focused of China's banks. The bank also has a profitable subsidiary in Hong Kong.

Investment Outlook
The fund manager believes the medium-term outlook for Asia is positive even though 2009 is expected to be a difficult year for equity markets around the world. He feels that the likelihood that a systemic crisis will erupt has declined substantially and this is positive for equity markets. In addition, the availability of credit is improving slowly and valuations look better now that investor expectations have become more reasonable. In the fund manager's view, the economic stimulus measures undertaken by governments around Asia, particularly in China, are starting to work. For example, signs have emerged that economic activity in China is recovering in the wake of Beijing's promotion of bank lending and increased infrastructure spending.
Prudential Pacific Markets comment - Dec 08
Thursday, 19 March 2009 Fund Manager Comment
The final quarter saw increased volatility in equity markets worldwide as concerns over the depth of the global recession proved stronger than attempts by governments to ease capital flows. The US dollar strengthened against most currencies, whilst declining energy prices provided little cheer. Asian markets bore the brunt of investors' reduced appetite for risk. Close to year-end, market stability seemed to gain traction as governments introduced further policy measures to rejuvenate their economies. Asian (ex Japan) markets dropped sharply during the quarter, with Indonesia, India and Australia suffering the heaviest falls. China, Malaysia and Hong Kong lost the least ground.
Against this unfavourable backdrop, the Fund under-performed its benchmark. Overall asset allocation was neutral. The fund benefited from an underweight position in Australia, but was restrained by light exposure to China. Stock selection in Australia, Taiwan, Thailand and India was positive, but this was more than offset by stock picks in China, Hong Kong, Singapore and the Philippines.
The Fund did well in Australia, primarily by having minimal exposure to under-performing sectors seen to be in a cyclical slowdown including industrial metals, real estate and general retailers.
In China, the Fund suffered from having no exposure to the construction and materials sector, seen as a frontline beneficiary of country's massive stimulus package that was announced in November. A minimal weighting in property stocks, recovering on improving market sentiment, was also a restraining factor.
The Fund was overweight in Thailand, which lagged the region as political turmoil drove away foreign investors and hampered efforts to shield the economy from the global slump.

Investment Outlook
The fund manager continues to believe that the medium-term outlook for Asia is positive and it will be able to deliver strong returns once market confidence and stability returns. The region's economic growth is likely to slow as the result of weakening exports and slower capital formation; however the fundamentals in Asia are generally in better shape to weather the downturn than those in developed markets. Fiscal and monetary measures are moving quickly to counter the cycle, and some degree of economic decoupling from the global slowdown should be visible over the next 18-24 months.
The short-term view is still one of caution, but the fund manager believes that valuations are supportive and the investment case for Asia is a question of 'when' rather than 'if'.
Prudential Pacific Markets comment - Sep 08
Tuesday, 25 November 2008 Fund Manager Comment
Investor worries over the quarter shifted from persistent inflation to slower global growth and then escalating financial contagion. September saw steep falls in global equities, with investor confidence all but wiped out as more beleaguered financial institutions in the US, Europe and beyond faced bankruptcy, government takeover or complete restructuring. Credit markets came to a virtual standstill, investors fled to the safety of US treasuries, while the US dollar strengthened against most currencies. Asian markets, especially emerging economies, were hit hard.

The Fund marginally outperformed its benchmark during the quarter, with an overweight position in the Philippines proving helpful.

Performance was also helped by positive stock selection in China, Singapore, Thailand and Indonesia. In addition, relatively light positions in Singapore and China proved beneficial. In China, Focus Media was a significant contributor. China's largest digital media group recently reported profits that were above expectations. In the fund manager's view, the company faces little competition in its core businesses and is a major beneficiary of the still favourable market conditions for electronic advertising in China.

In Singapore, the Fund benefited by avoiding marine-related and consumer sectors, which the fund manager views as too expensive and heading for a cyclical slowdown. Thailand's top mobile phone operator Advanced Info Service (AIS) also helped performance. AIS posted record quarterly earnings that beat expectations, driven by strong subscriber growth and increased revenues.

The Fund has a relatively light exposure to India, which proved detrimental as this market outperformed on a relative basis. Stock selection was also negative. The fund manager avoided Indian steel producers, which underperformed. However, this did not compensate for the lack of significant exposure to construction & materials, general industrial and financial companies, which showed relative market strength in the quarter.

Investment Outlook
The fund manager continues to believe that the long-term outlook for Asia is strong, although the region's economic growth is likely to slow as the downturn in western economies reduces Asia's exports to some of its largest customers. He is adhering to an investment focus on cash flow and long-term valuations. He believes that Asian valuations have again become cheap and that attractive buying opportunities are emerging. He sees promise among companies that serve domestic demand, particularly in China, while he feels that India still looks overvalued.

The fund manager believes that confidence in the world's financial institutions will eventually be restored. Non-performing loans and funding are lesser issues in emerging markets, although there may be some pockets of stress in these markets.
Prudential Pacific Markets comment - Mar 08
Friday, 23 May 2008 Fund Manager Comment
The first quarter was characterised by extreme volatility across global equity markets. This was fuelled by rising concerns that major financial institutions in the US and Europe may face capital shortages following expanding losses relating to difficulties in the US subprime mortgage market.

The Fund outperformed with the good result stemming largely from stock selection in Taiwan, as well as asset allocation in Thailand and India. Thailand, the portfolio's largest overweight position, moved higher, while India, the biggest underweight, tumbled .

Specific contributors at stock level included Taiwan Cement and Fuhwa Financial, which both experienced a gain in share price during the quarter. Rising market share brings with it pricing power, a widening of margins and an improvement in profit growth. Fuhwa Financial is a large broker that seems likely to benefit from the easing of government regulation in the securities industry.

Relatively large positions in Taiwan-listed Far Eastern Textile and Cathay Financial Holdings served the Fund well, with the share price of both companies rising sharply during the quarter. In addition, a relatively large holding in Thai-listed Advanced Info Service, a leading mobile phone operator, added value as the company declared its first profit increase in three years.

However, the Fund's performance was restrained by stock selection in Hong Kong. More specifically, there was weak performance by holdings in three Hong Kong-listed China companies - China Resources Power, Agile Property and China Lotsynergy.

Major electricity generator China Resources Power saw its share price suffer because of concern about two key factors - the rising price of coal, a major cost, and Beijing's restrictions on electricity tariff hikes. The fund manager remains positive about the stock as China's demand for electricity is rising strongly and tariff restrictions are likely to be eased. Agile Property is a developer that is active in China's bustling Guangdong Province. The company's share price retreated due to unease about Beijing's efforts to cool the real estate industry. Finally, investors were concerned about prospects for lottery services company China Lotsynergy due to changes in the regulations governing the gaming industry.

The fund manager believes the medium-term economic outlook for Asia remains strong, with domestic consumption and the investment cycle robust enough in several markets to offset possible export slowdowns. Growth is expected to slow down while remaining above trend growth in the next two years. The fund manager believes the region's equity markets remain fairly valued and he is upbeat about medium-term equity returns in light of the region's strong economic backdrop and ample liquidity. Short-term volatility is likely to be on the cards, however.
Prudential Pacific Markets comment - Dec 07
Friday, 22 February 2008 Fund Manager Comment
The Fund outperformed the benchmark against a backdrop of global share price volatility amid concem that the troubled sub-prime mortgage market in the US would hurt economic growth.

The Funds outperformance resulted largely from stock selection in China, Korea and Australia. More specifically, China Railway Group and BYD Electronic International featured among the largest contributors. The Trust participated in the initial public offering of both companies late in the quarter and benefited from sharp rises in their stock prices. China Railway is the largest builder of rail systems in China and is backed by strong demand from the central government, while BYD Electronic, also based in China, makes components for mobile phones.

Australia-based diversified mining company Rio Tinto was another strong contributor, following a takeover bid by BHP Billiton, an Australian rival. In Korea, a position in LG Electronics (LG E) proved helpful. LG E has been chosen by Verizon, a major US telecom carrier, as a vendor of touch screen mobile phones. In addition, we believe that LGE is moving to turn around a troubled plasma display panel business.

Not holding a position in Korean steel maker POSCO also added value. The company's shares fell during the quarter after having risen sharply since the beginning of the year as the result of a merger-andacquisition fever among steel companies around the world. The fund manager prefers not to hold POSCO as he believes the stock is overvalued.

During the quarter, the fund manager began new positions in Taiwan-based Advanced Semiconductor Engineering and China Netcom Group. Advanced Semiconductor Engineering provides integrated circuit testing and packaging services and we believe the company is likely to benefit from rising demand in the personal computer and communications industries. Meanwhile, China Netcom dominates the rapidly growing broadband industry in China's northern cities. In addition, the company is seeking a license to operate a mobile phone network.

Investment Outlook
We believe the medium-term economic outlook for Asia remains strong. Domestic consumption and the investment cycle have grown strong enough in several markets to offset possible export slowdowns. Asia trades at a premium to the rest of the world as well as against its own history. We remain upbeat about equity returns in the medium term.
Prudential Pacific Markets comment - Sep 07
Tuesday, 30 October 2007 Fund Manager Comment
The bursting of the sub-prime loan bubble in developed markets caused high volatility in the Asia Pacific ex-Japan region during the third quarter. Notwithstanding this, regional markets managed to end the quarter on a high, with investors' sentiment bolstered by a 0.5% cut in the US interest rates.

The Fund underperformed its benchmark over the quarter. Underweight positions and stock selection in China and Hong Kong proved detrimental to relative performance, as did an overweight position and stockpicking in Korea. More specifically, the Fund was hurt by not holding China Mobile, as the stock surged to levels the manager considers to be demanding. The Fund's underweight positions in several Chinese insurers, such as China Life and Ping An, damaged performance at a time when insurers enjoyed strong gains from investment returns. However, the fund manager finds it hard to justify the valuations in these stocks. An overweight position in Hong Kong's Techtronic Industries detracted. The company is carrying out a restructuring programme and this will take time to yield results. Nonetheless, the manager believes the company's shares are extremely inexpensive on a two-to-three year view. An overweight position in Korea's Kookmin Bank detracted from performance. The company lost the race to buy Korea Exchange Bank to a competitor, but the manager believes that further domestic acquisitions and/or capital management initiatives are likely.
More positively, an underweight position and strong stock selection in Australia were the biggest positive contributors to performance. Our overweight position in BHP Billiton proved beneficial on the back of a strong rally in the company's share price. The stock was supported by strong commodity prices and healthy Chinese demand. Underweight positions in Malaysia and New Zealand also had a positive effect on performance, although stock selection in Malaysia detracted. On a stock level, other positive contributors to performance included our overweight positions in Chinese companies with an emphasis on domestic demand, such as Shui On Land, Yanzhou Coal and China Construction Bank. Finally, an overweight position in CNOOC contributed to the fund's performance on the back of the high oil price.

The manager continued to consolidate the portfolio over the third quarter, disposing of three large positions in banks: Commonwealth Bank of Australia, Hong Kong's Dah Sing Financial and Indonesia's Bank Central Asia. In return the fund manager added to a position in China's ICBC and established a new position in Malaysia's Public Bank BHD. The fund manager also exited a large position in leisure company Tabcorp in Australia. New positions were established in Australian firm Aristocrat Leisure, South Korean telecommunications company LG Dacom and Taipei-based electronics company Hon Hai Precision.

Investment outlook
The fund manager believes that the medium-term outlook for the region remains robust. Several countries have reduced their corporate and government debt and the region enjoys strong macro and corporate balance sheets. Although economic growth is likely to slow, the manager expects it to remain above trend in the medium term. As a result, the manager remains upbeat about medium term equity returns even though near-term valuations are starting to appear expensive. Despite the prospect of slower US economic growth, Asia should remain in a phase of economic expansion strong enough to underpin continued corporate earnings growth.
Prudential Pacific Markets comment - Jun 07
Tuesday, 25 September 2007 Fund Manager Comment
After a volatile first quarter, regional equity markets performed strongly, supported by significant inflows of foreign money and improved sentiment amongst local borrowers, with growing evidence of a soft landing in the US economy.

The Fund underperformed the benchmark over the quarter. Overweight positions in Thailand, Korea and Australia had a positive effect, but this wasoffset by the detraction from underweight exposure to China and India. Much of the Fund s underperformance can be attributed to stock selection in Korea. Korean industrials surged over the quarter, with Hyundai Heavy Industries and Samsung Heavy I ndustries both posting returns above 80%. However, the Fund did not hold a position in either stock as both are valued at an extraordinary premium to historical levels. The Fund's holding in several Korean financials, including Hana Financial. Kookmin Bank and KEB also hurt performance, however the manager believes the investment thesis for these holdings remains intact.

Positive contributions to relative performance were drawn from a combination of overweight positions in resource stocks and from several of the manager's small index-weight, high conviction ideas. The former include Bumi Resources, Yanzhou Coal and Rio Tinto, all of which are key beneficiaries from China's thirst for energy to drive its economic expansion. The latter include China Lotsynergy, which provides lottery ticketing systems, online game company NCSoft in Korea and energy firm PTT in Thailand.

The manager consolidated the portfolio over the second quarter, liquidating 11 holdings including large positions in Taiwanese companies United Microelectronics and Nanya Plastics. New positions were established in China Construction Bank, real estate investment trust RREEF China Commercial Trust and Yanzhou Coal.
Prudential Pacific Markets comment - Mar 07
Monday, 28 May 2007 Fund Manager Comment
Despite a volatile start to the year, regional equities continued to make gains over the first quarter. The US Federal Reserve changed its policy to neutral but noted that inflationary pressures remained. This encouraged hopes that inflation may be contained and US interest rates could be cut for the first time since 2003 in the coming months.

The Fund slightly underperformed the benchmark, with asset allocation detracting from performance in Malaysia and Taiwan. Fund returns in Singapore and China were also disappointing as the portfolio has a relatively light position in these markets, which rallied strongly. Detractors came largely from Taiwanese financials and technology stocks. In technology, semiconductor exposure also held back returns. In China, returns in the oil and gas as well as insurance sector were disappointing. More positively, good stock selection in Australia, Indonesia and Hong Kong added value.

The key contributors to performance were Australian and resource sector holdings, in particular Australia's BHP Billiton, Rio Tinto and Indonesia's Bumi Resources. Other strong contributors included banks and oil refineries in Korea such as Kookmin Bank, Korea Exchange Bank and SK Corp. The fund manager established a few new positions over the quarter. In India, IT outsourcer Satyam Computer Services was purchased while Infosys Technologies was sold as the fund manager considers Satyam to be relatively more attractive.

Also in software and services, a position in Korea's online gaming developer NCSoft was initiated. The fund manager sold positions in the property sector, including China's developer Shimao Property. While the fund manager considers Chinese developers to be attractive, this stock has performed well and he felt it had become fairly valued.
Prudential Pacific Markets comment - Dec 06
Wednesday, 14 March 2007 Fund Manager Comment
Regional equities continued to make solid gains in sterling terms over the fourth quarter. The pause in US interest rate hikes that began in August extended throughout the period. This, combined with falling oil prices, encouraged hopes that inflation may well be contained. This in turn supported optimism that the US economy would achieve a soft landing. In tandem, China's attempts to reduce speculative investment showed some early signs of success. These factors helped feed global risk appetite, particularly for emerging market equities.

The best performing markets continued to be China, Indonesia and India. All markets ended the quarter in positive territory, with the exception of Thailand. The post-coup d'etat military-backed government stumbled badly in an attempt to stem a speculative rise of the Thai Baht by imposing currency controls. Until that time, equity markets had been giving the government the benefit of doubt. The fund manager continues to keep a close eye on Thailand, with an emphasis on gauging when Thai interest rates will fall and domestic consumption and investment will recover as these, in our view, are the key catalysts for the market. On balance, the economic fundamentals for the region have remained steady and, at an aggregate level. we believe valuations for Asia Pacific (ex Japan) equities remain fair.

The fund was in line with the benchmark. The key drivers of absolute performance continued to be Chinese property and financial holdings such as Ping An Insurance and Shimao property as well as technology holdings such as Hon Hai Precision and Wistron Corp. Detractors included Thailand's Kasikorn Bank.

Investment Outlook

The outlook for 2007 is less sanguine than 2006. The fund manager believes that, in aggregate, regional valuations reflect much of the good news and earnings expectations that drove markets so high last year. We believe that equity returns will reflect underlying earnings growth, provided that the investment environment remains benign. The region remains vulnerable to a few risk factors. In particular: earnings disappointments related to the normalization of cyclically high margins; a slowdown in US consumption or a hard landing for the economy; and lastly, a disruptive legislative resolution to global trade and capital/current account balances.
Prudential Pacific Markets comment - Sep 06
Tuesday, 28 November 2006 Fund Manager Comment
Regional equities made solid gains in sterling terms over the third quarter. In July, equities were relatively muted as investors feared a hard landing in the US economy. However, in August, the US Fed chose not to increase interest rates for the first time in three years, and this, coupled with a reduction in crude oil prices, encouraged hopes that a US consumer recession could be avoided. This boosted sentiment among equity investors in the second half of the quarter.

The Philippines and Indonesia were the best performing markets, in stark contrast to the second quarter, and it seems that some appetite for risk has re-emerged among investors after the volatility in May. India also had a good quarter relative to the region. Although all regional markets ended in positive territory, the weakest were Australia and Taiwan. Australia suffered largely from a combination of reduced commodity prices and high interest rates, while Taiwan's equity markets were held back by fears of a slowdown in the global economy as well as demonstrations against President Chen Sui Bian. The coup in Thailand, although significant in terms of the development of parliamentary democracy in the country, had only marginal effects on national and regional equity markets. The fund manager will keep a close eye upon Thailand, to see what impact the installation of the new government has on the economy.

The Fund underperformed its index over the quarter. The Fund's exposure to Korean banks detracted from performance. Investors reacted negatively to slightly weaker margins in the sector, and to the news that Kookmin Bank's efforts to buy a stake in Korea Exchange Bank had stalled, pending government investigations. Our position in Taiwanese technology holdings also detracted, as investors grew concerned over the possibility of a slowdown in US economic growth.

At a stock level. Agile Property Holdings aided performance, as investors reacted positively to the Guangdong-based company's efforts to expand its competitive and high quality development strategy to other Chinese provinces. China Mobile also did well, benefiting from increasing demand for mobile phones in China, and the development of its strategy to roll out mobile coverage to rural areas. Both BHP Billiton and Rio Tinto detracted from performance as they suffered, along with the bulk of the Australian resources sector, from the drop in demand for commodities.
Prudential Pacific Markets comment - Jun 06
Wednesday, 16 August 2006 Fund Manager Comment
Asian equities ended down for the second quarter. Volatility increased and the market swung from strong gains in April to losses in May and June with a small recovery towards the end of the quarter. Volatility was attributed to concerns about a slowdown in global growth, rising interest rates, sustained high energy prices and slowing exports. India was a notable underperformer giving up some of its extraordinary gains in the first quarter. Other markets that were weak were Korea, Thailand, the Philippines and Indonesia - all at the riskier end of the emerging market spectrum.

Interest rates continue to rise in Asia with central banks choosing to be pre-emptive and to keep up with rates in the US. With appetite for risky assets declining modestly during the quarter, the quarter saw a meaningful sell-off of emerging markets, including Asia. This has temporarily dented the confidence of local investors in Asia who prefer to wait and watch for further developments.

In reality, not much has changed in the last quarter. Economic growth has been steady, with a modest slowdown in exports from Asia. Earnings expectations have held firm. Hence as markets fell, the only change was to risk premium, which rose, improving prospective returns. Valuations look fair in the context of strong macro-economic fundamentals offset by the current cyclical peak in earnings.

The Fund slightly underperformed the peer group average during the quarter. The principal detractors were the overweight positions in Thailand and India, given the volatility seen in those markets recently. Stock selection in those markets and China broadly offset the effect of country allocation.
Prudential Pacific Markets comment - Mar 06
Thursday, 11 May 2006 Fund Manager Comment
Asian equities continued from where they left off in the fourth quarter of 2005. Several markets in Asia posted double digit gains in the first quarter of 2006 in US dollar terms, with a material contribution coming from currency appreciation in several countries. India, China and surprisingly Indonesia led the performance tables. Taiwan, Korea and Malaysia were the laggards. Interest rates rose across Asia during the quarter, following the lead by the US Federal Reserve.

The global economy has shown signs of modest reacceleration, led by China and India. Europe and Japan are also contributing, taking pressure off the US, which for a while was the sole driver of global growth within developed economies. As a result of this renewed growth dynamic, commodity prices have firmed up once again. Increasingly, we are witnessing a synchronised global monetary policy tightening move by central bankers, which will no doubt be a headwind for equity markets at some point. For the moment, markets are focused on earnings growth, which has been robust, and valuation, which has been undemanding.

An overweight position in Indonesia proved valuable, as Indonesia has confounded pessimists with a series of positive economic data. Growth has been stronger than expected, consumer demand resilient, the trade balance positive, and the rupiah strong. Furthermore, investors are not focusing on the inflationary impact of reducing fuel subsidies.

On the other hand, the underweight position in China detracted from performance, as this market rallied strongly. China had a solid start to 2006 as the tightening bias of 2005 gave way to a more supportive macro-economic policy environment. The economy has responded quickly and growth estimates have been revised upwards.
Prudential Pacific Markets comment - Sep 05
Wednesday, 26 October 2005 Fund Manager Comment
Equities shrugged off high oil prices, rising inflation and interest rates and two devastating hurricanes in the US to make strong gains in the third quarter. Within Asia, Korea and India were the star performers, while Indonesia and Taiwan were notable laggards.

The Fund slightly outperformed the index. Hong Kong added to performance because of successful stock picking. For example, the Fund benefited from holding overweight positions in property landlords Swire Pacific, Hysan Development and Hongkong Land as occupancy and rental data have been strong, suggesting that the recovery is coming faster than expected. Hong Kong Exchanges & Clearing also added value, as investors were optimistic that rising stockmarket trading volumes would boost earnings.

On the negative side, one of our largest overweight positions, Indonesia, held back performance as it was one of the weakest areas in the region. This disappointing outcome was due to concerns about the falling rupiah and high interest rates, which weighed on the market. Motorcycle manufacturer and auto distributor Astra International was particularly hard hit. Stock selection in Singapore detracted as well, with holdings in telecom stocks Singapore Telecom and MobileOne holding back performance as earnings came under pressure from intense competition from new entrants.

Investment outlook
Economic growth in 2005 has been stronger than anticipated, possibly at the expense of 2006. Markets have been surprised by the continued momentum in the US economy and expectations of a second half slowdown in 2005 have been pushed back to 2006. Japan now seems to be on a path of self-sustaining growth which is particularly helpful for Asia. Even China, which was slowing under a policy-initiated slowdown of targeted sectors, seems to be reaccelerating. Consensus opinion seems to have shifted to anticipating a slower 2006 for the global economy. Asia should fare relatively better, however, given the early stage of consumer and investment cycle in many markets.
Prudential Pacific Markets comment - Jun 04
Thursday, 16 September 2004 Fund Manager Comment
Fund manager's feedback
The second quarter of 2004 was a weak period for Pacific markets, with both equities and currencies falling in value. A number of factors weighed on markets, including a shift in expectations toward rising US interest rates, prolonged high oil prices and growing expectations of a sharp slowdown in China's economic growth. Given this background, investors anticipated slower global growth later this year and into 2005. With many global investors still viewing the region as being very dependent on global growth, Pacific equities were subsequently less attractive to investors. The Fund underperformed over the quarter. Negative factors included India, which was the Fund's largest overweight and the weakest area in the region, largely due to fears that the new government would be less business-friendly. Detractors included Dr Reddy's

Laboratories and Hindustan Petroleum. More positively, Thailand, Indonesia and Singapore added to the Fund's performance. The Thai market was relatively resilient amidst the region's sell-off; Advanced Info Service and Bangkok Bank led the good contributors. In Indonesia, Bank Rakyat Indonesia and HM Sampoerna outperformed. Singapore's United Overseas Bankand MobileOne also contributed to positive performance despite deteriorating expectations of global growth. The Fund also benefited from good stock selection in Korea and Taiwan, despite their being the region's second- and third-worst performing markets, respectively. Strong contributors included Korea's Amore Pacific Corp, new position Kumgang Korea Chemical and KT&G Corp, and Taiwan's Delta Electronics and President Chain Store and Chunghwa Telecom.

Investment Outlook
A large part of the recent stockmarket declines in the Pacific region can be attributed to investors' belief that the global economy is set to slow. The outlook for the Pacific region, as with the rest of the global market, will be coloured by the process of adjustment to slowing growth in China and the US. Positively, the region's domestic demand is recovering well. In addition, the region boasts very attractive valuations, especially after the declines in recent months. This is particularly the case in the technology sector, where investors are very sceptical of any sort of prolonged recovery. The region's good valuation implies useful opportunities for selective buyers to take advantage of bargains in promising growth companies.
Prudential Pacific Markets comment - Mar 04
Tuesday, 8 June 2004 Fund Manager Comment
Regional equity markets delivered mixed returnsduring the first quarter of 2004. Some of 2003's best performers gave up ground with Thailand and China among the worst performing markets after their fourth-quarter rallies. A number of factors prompted this profit taking, including significant new equity supply in both markets, plus specific issues such as political violencein southern Thailand and disappointing profit news for Chinese companies. The best performing regional markets were Korea, Taiwan and Malaysia. Korea and Taiwan benefited from certain technology- related comp anies, while Malaysian equitiesgained from a combination of positive earnings news and emerging evidence that economic momentum was accelerating.

The Fund outperformed in the first quarter. Performance was helped by an underweight position in China, which had a weak quarter due to concerns about over-investment as well as a number of disappointing profits reports, although resource-based companies performed well.Stock selection in Hong Kong added value, with property companies Hysan Development, Sun Hung Kai Properties and Swire Pacific boosting performance. In Korea, a relatively large position in technology stock Samsung Electronics led to a strong positive contribution to performance, following a robustgain in its share priceover the quarter. However, positions in Kookmin Bank and SK Telecom dragged down performance. Singapore stocks DBS Group, Singapore Airlines and Venture disappointed, due to profit taking as the market consolidated after a generally positive 2003 results season.

Investment Outlook
Following 2003's robust returns, which were particularly strong in the second half of the year, the choppiness in a number of Asian markets during the first quarter was not especially surprising. In some cases, it was quite welcome. Indeed, a number of Chinese and Thai stocks haveseen corrections of20% or more, which has successfully deflated some of the bubble-like tendencies that were emerging in specific parts of these markets. The key risks to a generally positive outlook are a tightening in monetary policy via regional currency appreciation, and a sharp slowdown in economic growth in China. The impact of both events, however, is being mitigated by the growing strength and depth of domestic activity elsewhere in the region.
Prudential Pacific Markets comment - Dec 03
Monday, 9 February 2004 Fund Manager Comment
Equity markets in the region ended the year on a firm note, with gains of between 5% (Taiwan) and 38% (China) in local currency terms over the quarter. China's growth was led by oil, commodity and consumer stocks and the effect of the country's expansion spilled into other markets with companies exposed to China rising sharply. Thailand and India were also strong performers. Thai equities benefited from strong domestic demand, led by petrochemical and financial stocks, while India gained due to investors' belief that a sustainable domestic economic recovery had taken hold. The growing trend of back office outsourcing to India was another positive factor for the country's growth prospects.

The Fund outperformed in the fourth quarter, largely due to overweight positions in the top performing markets (Thailand and India) with stock selection actively contributing in both instances. An overweight position in Thailand was the largest contributor to the final quarter's performance. Heavy exposure to gas and oil company PTT contributed significantly to performance as did a slightly lighter exposure to Advanced Information Service. The Fund's overweight position in India was the second largest contributor to performance. Overweight positions in ICICI Bank and motor cycle company Bajaj Auto added the greatest value. Korea also actively contributed largely due to stock selection with an overweight position in automobile firm Hyundai Mobis. Underweight positions in Hong Kong and Taiwan added value, given the underperformance of these markets. Light exposure to China held back performance, because of the strong rally that took place during the quarter. However, Chinese oil and gas company Sinopec rose strongly and the Trust benefited from its position in this stock.

Investment outlook
Enthusiasm for investment in the Asia-Pacific region remains at a high level, driven by strong economic growth rates and the relatively modest level of share valuations. Success in China has drawn investors to other countries in the region, notably India and Thailand. A potential risk for the region's growth prospects is a sharp rise in the value of local currencies against the US dollar in 2004. To date, most regional central banks have fought such a rise. With currency policy a hot global political topic, there nonetheless remains a risk that 2004 turns out to be a year of strong Asian currencies, which could weigh on regional exporters.
Prudential Pacific Markets comment - Jun 03
Wednesday, 13 August 2003 Fund Manager Comment
The deep depression of late March was a distant memory by the end of June, as regional equity markets rallied very strongly during the second quarter. All markets rose more than 10% in US dollar terms, with Indonesia leading the pack, rallying a shade under 50%.

Interestingly, the region lagged global markets early in the quarter. Factors contributing to this initial subdued performance were the lingering effect of SARS and an ongoing scepticism about global growth. However, as US and global interest rates fell and global growth expectations began to pick up, regional markets ultimately rallied strongly.

The Fund did well over the quarter, performing broadly in line with the index. Of the major markets, Korea rose the most. Accordingly, the Fund's overweight exposure to Korean equities proved beneficial, with Posco and SK Telecom both doing well. Korea was the top-performing major equity market in the second quarter for 2003, as the market recovered from the sharp sell-off in the first quarter that was related to North Korea and consumer credit concerns. Retailer Shinsegae was also a strong contributor to the Fund, rising in value over the quarter in expectation of improved earnings
Prudential Pacific Markets comment - March 2003
Friday, 25 April 2003 Fund Manager Comment
The backdrop of war, a deflationary spiral in Japan and the threat of nuclear conflict with North Korea prompted falls in Pacific financial markets in the first quarter of 2003. Despite this, the region outperformed the FTSE World Index, aided by a particularly strong performance from Australian equities.

Korea was by far the weakest market in the region, as North Korea's more aggressive policy on nuclear weapons, coupled with a slowdown in domestic demand, undermined investor sentiment. Hong Kong and Singapore equities also underperformed due to concerns about deflation in the property market and weak loan growth. The SARS pneumonia outbreak at the end of the quarter hit an already weak Hong Kong economy.

The Fund underperformed its benchmark over the quarter, due to the overweight position in Korea which was the weakest market in the region. This was due both to concerns about the threat from North Korea, as well as an accounting scandal in SK Group which highlighted the lack of transparency in the Chaebol-dominated economy. Four out of five of the largest underperformers in the portfolio were from Korea. On the positive side, our overweight position in Thailand was beneficial, with the portfolio's holdings all showing positive returns.

Investment outlook
We remain positive about Pacific markets because of their undemanding levels of valuation and the structural changes many economies have been through and are still benefiting from. Important changes have occurred which have led to stronger balance sheets and an increased focus on profitability and capital management, while a weaker US dollar has allowed Asian central banks to build up foreign exchange reserves and reduce interest rates. Current equity valuations do not take account of this improvement, and instead reflect the downside risk associated with the Asian crisis and the bursting of the technology bubble.
Prudential Pacific Markets comment - September 02
Wednesday, 30 October 2002 Fund Manager Comment
Asia Pacific equities continue to drift lower in sympathy with global trends, as worries about the US exerting a particularly strong influence continue.

However, the rate of decline, especially in defensive markets like Australia, has been below the world average. Asian economies (Japan excepted) are expanding at well above rates forecast for other regions, creating profitable opportunities for the more dynamic companies. Valuations for well-managed companies with acceptable accounting standards and solid growth prospects are typically much more modest than in other parts of the world. We see significant buying opportunities opening up for long term investors.

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