Gold continues to be a winning play for Sturgeon Capital. The Silk Road-focused fund gained 5% in June and is now up 0.88% for the first six months of the year. The biggest contributors to the fund’s June returns were one bank stock, one gold stock and one copper stock. It was generally a solid month for central Asia, Frontier Markets and the Silk Road region.
A month of gains for the region and commodities
The MSCI Russia index gained 6.92%, while the MSCI Turkey index was up 7.54%. The Kazakh Index was up 1.94%, while the MSCI Frontier Markets index gained 1.72%. The Russian ruble was the strongest central Asian currency with a 3.93% appreciation. The Turkish lira was up 0.78%, while the Kazakh tenge gained 0.69%. The Georgian lari depreciated 2.5% on the back of political turmoil and violence in the country.
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June was also a positive month for commodities as Brent oil gained 3.19% while copper was up 2.75% and gold gained 7.96%.
Calm in Kazakhstan, turmoil in Georgia
In their June report to investors, which was reviewed by ValueWalk, the Sturgeon Capital team provided updates on the political situations in Kazakhstan and Georgia. Kazakhstan held its presidential election, and Kassym-Jomart Tokayev won with nearly 71% of the votes. Because he was the successor selected by the former leader, his election signals continuity in the country. However, not everyone was happy with the result as some called for democratic elections and economic improvements. Despite those calls, the Sturgeon team doesn’t expect any major changes to the landscape in Kazakhstan any time soon.
It was an entirely different story in Georgia where protesters stormed Parliament after a Russian lawmaker gave a speech from the Parliament speaker’s chair. It was part of the Inter-parliamentary Assembly on Orthodoxy. Police descended on the scene for crowd control using tear gas and rubber bullets. Following the incident, the speaker of the parliament resigned, and Georgia’s president dubbed the Russians as occupiers.
Russia retaliated by cancelling air traffic between the two countries and preparing to ban wine imports from Georgia. These two moves stand to take a significant bite out of the Georgian economy. The nation’s central bank estimated the economic impact at US$200 million to US$300 million. Sturgeon expects the impact on the nation’s real economy to be mitigated by the free-floating currency which will likely depreciate. Due to the increased risks in Georgia right now, management has cut the fund’s exposure to the country.
Big winners and losers
Sturgeon’s three biggest contributors in June were Halyk Bank, Centerra Gold and KazMinerals. Halyk Bank stock benefited from the change in the bank’s dividend policy to 50-100% pay-out of net income. Due to the bank’s high capitalization and the lack of growth opportunities, increasing the pay-out to shareholders is seen as a big positive.
Centerra Gold and KazMinerals benefited from the rallies in gold and copper prices. The fund’s management said expectations of a U.S. rate cut and weaker dollar fueled optimism in the market.
The fund’s biggest detractors in June were Georgia Healthcare Group, Kazatomprom and Central Asia Metals. Georgia Healthcare was hit by the protests in Georgia and the Russian travel ban as the company has been focused on attracting medical tourists from outside the nation’s borders. Kazatomprom struggled as the markets await a decision from U.S. President Donald Trump about protectionist measures on uranium imports from some countries.
Sturgeon launches Uzbekistan fund
The Sturgeon team also announced that they’re launching an Uzbekistan-focused fund called Otlin.
“Uzbekistan has taken decisive and bold steps toward reform in recognition of the need for fundamental change in order to stimulate economic growth and job creation,” the fund’s management wrote. “The country’s new government has begun to implement wide-ranging economic reforms to enable the country to take advantage of its current opportunities and realise its potential.”
The fund’s management sees several macro catalysts which should benefit the country. They also cited China’s Belt and Road Initiative as a catalyst for trade, modernization and diversification for the Uzbek economy.
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