The Strategy had a strong finish to the year with a 10.2% gain in the fourth quarter, well ahead of the benchmark’s 7.9%. This brings to end what turned out to be a positive year, ending up 9.6%, broadly in line with the index. This is especially pleasing after we started the year so poorly, as the technology stocks of Korea and Taiwan had a strong start. These types of stocks inevitably hardly feature in our portfolio, given the Strategy’s consumer focus.
India was once again the key driver of performance in the fourth quarter as earnings growth continued to surprise on the upside and foreign investors, who had been cautious with regards their Indian exposure in recent months, returned to the market. Domestic flows continue to be steady as regular savings plans grow. There were some state elections in Northern India which turned out more positively than expected for Modi’s BJP, boding well for the general election in April/May 2024.
Despite the difficulties that face China, our stocks continued to outperform with the highlight being those operating in the residential property sector. Demand remains very strong, and pricing is also starting to turn up meaningfully. Valuations in China are now exceedingly low, and the Strategy’s holdings there are confined to sectors which seem to us to be well founded, economically important, and likely to recover strongly in due course.
Mexico and Brazil became more important as the year progressed, with positions in both markets covering Coca-Cola distributors and convenience store operators, as well as one ecommerce player. Mexico is enjoying the benefits of US companies relocating manufacturing away from China, and had another good quarter, with the exception of an airport operator, which we exited. Brazil also continues to perform well, led by our regional e-commerce holding. Interest rates are at extraordinarily elevated levels, especially in real terms, and look set to fall dramatically.
Our outlook is little changed from last quarter, in that inflation and interest rates are likely to start falling across most of our economies, if they have not already. This should be a positive backdrop for real incomes and ultimately consumers. As before, China, is the exception and the continued woes of the property sector, and its impact on consumer confidence, remains the biggest challenge. We enter 2024 in an optimistic frame of mind.