Stocks in Asia ex-Japan ended nearly flat in the second quarter as hefty gains in China's market offset declines in Indian and Southeast Asian stocks. Mainland Chinese markets rose to a seven-year high in June but fell into a bear market by month-end after regulators took steps to clamp down on margin financing. Indian stocks retreated as some investors opted to lock in profits after the domestic Sensex benchmark rose to a record in January. India's gross domestic product (GDP) grew at a better-than-expected 7.5% annual pace in the first quarter, but other reports indicated economic weakness. Most Southeast Asian countries reported first-quarter GDP growth that missed forecasts. Indonesian stocks fell the most, down roughly 14%, as the country's economic growth slowed to a five-year low.
The New Asia Fund returned −0.93% in the quarter compared with 0.65% for the MSCI All Country Asia ex Japan Index and −0.25% for the Lipper Pacific Ex Japan Funds Average. For the 12 months ended June 30, 2015, the fund returned 2.40% versus 4.14% for the MSCI All Country Asia ex Japan Index and 0.56% for the Lipper Pacific Ex Japan Funds Average. The fund's average annual total returns were 2.40%, 7.76%, and 11.96% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.94% as of its fiscal year ended October 31, 2014.
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China, Hong Kong, and India represented the fund's largest absolute positions. Our holdings in China are concentrated in select Internet, consumer staples, and clean energy companies. Hong Kong and India accounted for the largest overweight markets relative to the benchmark. On the other hand, Taiwan and South Korea remained significant underweight markets due to a lack of attractive growth opportunities. Sector allocations reflect our preference for areas driven by domestic consumption. Consumer discretionary and information technology represented the largest overweight sectors as of June 30, 2015, while financials was the largest underweight. Our underweight in financials stems from our decision to avoid mainland Chinese banks because of nonperforming loan risk.
Rising U.S. interest rates are a potential near-term risk for developing Asian countries, which are bracing for the Federal Reserve's first interest rate hike in many years sometime in 2015. We expect the pace of U.S. rate hikes will be gradual and the terminal rate fairly low, giving markets time to adjust to the new environment. Most Asian economies are fundamentally stronger than they were prior to the 1997-1998 financial crisis, with current account surpluses, less foreign debt, and substantial currency reserves. Short-term capital flows are hard to predict, but we do not think that rising U.S. rates will precipitate a financial crisis in Asia in the near term. Instead, we believe that any market weakness around the Fed's liftoff will present a good buying opportunity. We are confident that cyclical and secular trends, particularly a growing middle class and increased consumption, will drive strong and sustainable economic and earnings growth in Asia for many years.