Asia Pacific ex Japan equities declined sharply over the quarter. Slowing global growth and the worsening credit crisis weighed heavily on financial markets globally. September was a particularly eventful month that saw significant developments in the US financial market, including the collapse of Lehman Brothers, Merrill Lynch's surprise sale to Bank of America and the rescue of AIG by the US Federal Reserve.Signs of slowing demand also drove the price of crude oil down. Australia and Indonesia were the region's weakest performers, weighed down by the materials and energy sectors.The fund outperformed the benchmark index over the quarter. Positive stock selection in Australia and Singapore contributed significantly although that was partially offset by negative stock selection in Hong Kong and China.Our holdings in healthcare stocks (CSL, Resmed) and consumer stocks (Woolworths, Lion Nathan, Coca Cola Amatil) outperformed, while industrial stocks in Australia and Hong Kong (James Hardie, Jardine Matheson and Swire Pacific) and select financial stocks (QBE Insurance, United Overseas Bank) were also positive for performance.Our preference is for quality names with strong fundamentals that provide good dividend support with steady and visible earnings prospects. To this end, we continue to hold names such as Swire, Jardines Group and China Mobile in Hong Kong, as well as BHP Billiton, Rio Tinto, Telstra Corp and CSL in Australia.
We are likely to see continued volatility in the markets as event-driven risks rise, but looking beyond that, we believe now could be a good time for investors to pick up quality companies with good long-term prospects cheaply.