Stocks in Asia ex-Japan declined in the first quarter, weighed by steep losses in China. Numerous economic indicators suggested that China faces a serious growth slowdown that will make it harder for the government to attain its 7.5% annual expansion target. Recent defaults in the domestic corporate bond market also highlighted China's unregulated lending practices, which some fear could set off a broader financial crisis. Indian shares rallied, driven by optimism that the main opposition party will take power after national elections scheduled for this spring and push through reforms. Indonesian stocks surged more than 21%, lifted by improving economic fundamentals, strong corporate earnings, and a recovery in the rupiah. Stocks in Thailand strengthened as its government lifted a state of emergency imposed on Bangkok and other areas ahead of schedule in March, raising recovery hopes after months of political unrest.
The New Asia Fund returned 1.19% in the quarter compared with −0.68% for the MSCI All Country Asia ex Japan Index and 1.69% for the Lipper Pacific Ex Japan Funds Average. For the 12 months ended March 31, 2014, the fund returned 0.94% versus 3.07% for the MSCI All Country Asia ex Japan Index and 2.64% for the Lipper Pacific Ex Japan Funds Average. The fund's average annual total returns were 0.94%, 21.69%, and 12.80% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.93% as of its fiscal year ended October 31, 2013.
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China, Hong Kong, and South Korea accounted for the largest absolute positions at the end of March. Our largest overweight countries were Hong Kong and India. We maintained longstanding underweights to Taiwan and South Korea. In China, we anticipate a gradual slowdown in the coming years but recognize the potential for some sectors and companies to benefit from what appears to be a reform-minded leadership. Our holdings there have exposure to domestic consumption, as boosting domestic demand becomes a policy imperative. We remain cautious about the near-term outlook for India, where we believe that the recent rally has outpaced fundamentals. We have reduced exposure to Southeast Asia, where growth is slowing and some companies have reported disappointing results. Sector allocations continue to reflect our preference toward areas driven by domestic consumption.
Growth in Asia ex-Japan is still outpacing that of most developed countries, but we expect most economies will maintain below-potential growth rates for some time. However, we are becoming more optimistic about the outlook for Asia. Our optimism is due to several factors: improving corporate earnings growth, valuations that have fallen to depressed levels relative to history and the broader equity market, and signs that many macro headwinds that roiled emerging markets in late 2013 have subsided. Countries that had wide current account deficits have reduced their imbalances and raised interest rates, and we believe currency selling pressure will be less severe for the rest of the year. Five years after the global financial crisis, we are seeing better-quality management and stronger business models, which have opened up good growth opportunities in a range of industries across the region. Over the long term, we believe that increased urbanization, rising consumption, and a growing middle class should drive strong and sustainable growth in Asia for many years.