Stock markets in developing Asia advanced in the third quarter due to a late rally after the Federal Reserve decided to maintain the pace of its monetary stimulus. Stock markets across the emerging world soared after the Fed's surprise decision on September 18, which briefly pushed the MSCI Emerging Markets Index to a four-month high. The Fed-induced rally more than offset weakness in the first two months of the quarter, when most emerging markets struggled with slumping currencies and slowing economic growth. Stocks in China rose more than 12% as data showed its economy stabilized following supportive measures by the government, easing worries about a steep slowdown. Indian stocks retreated as its currency repeatedly hit record lows over the summer despite the central bank's efforts to defend the rupee and stanch capital outflows. Indonesia was the region's biggest decliner, giving up more than 23%, reflecting investors' growing alarm about the country's widening current account deficit, persistent inflation, and weak currency.
The New Asia Fund returned 2.46% in the quarter compared with 5.86% for the MSCI All Country Asia ex Japan Index. For the 12 months ended September 30, 2013, the fund returned 1.72% versus 5.61% for the MSCI All Country Asia ex Japan Index. The fund's average annual total returns were 1.72%, 14.64%, and 14.64% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.95% as of its fiscal year ended October 31, 2012.
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Hong Kong, China, and South Korea accounted for the largest absolute positions at quarter-end. Relative to the benchmark, however, China and South Korea represented the largest country underweights. Over the quarter, we reduced our exposure to India and raised our exposure to Hong Kong. Our positioning in India has been influenced by the weakening economy, which sank to its lowest growth rate in the second quarter since the 2008-2009 global financial crisis. While the fund holds high-quality Indian companies, we believe that the country's macroeconomic challenges will weigh on corporate earnings over the near term. As for China, we continue to think it will manage a gradual deceleration as it shifts to a consumption-driven economy and the government winds down the spending that has fueled growth in recent years. We favor sectors driven by domestic consumption, which should grow strongly as Asia's consumer economy expands and more people join the middle and upper classes.
Stocks in emerging Asia have lately lagged those in developed markets due to slowing domestic growth and the anticipated end of U.S. stimulus, which has spurred investors to shift money into developed markets in search of rising yields. Despite Asia's recent underperformance, we feel strongly that the reasons for investing in the region are still intact. Lower commodity prices and easing inflation in some countries will help margins for many companies over the coming year, which will encourage stronger earnings growth than what we saw in 2012. Many businesses are in a capacity-readjustment process in response to slower revenue growth, which will weigh on profitability in the near term. However, increased urbanization, consumption, and upward mobility are secular trends that should drive strong and sustainable growth in Asia for many years. We are optimistic that real growth in emerging Asian markets is on track to outpace that of developed markets over the long term.