A nearing trade deal?

During the month, optimism regarding Chinese stocks continued to build. Investor risk appetite returned following the trade truce between the US and China and increased stimulus measures by the Chinese government. The MSCI China Index rose 3.5% in February, whilst the CSI 300 Index finally played catch up, surging 14.6% and delivering the best monthly performance in nearly 4 years.

Commentaire Mensuel
25 Mar 2019

During the month, optimism regarding Chinese stocks continued to build. Investor risk appetite returned following the trade truce between the US and China and increased stimulus measures by the Chinese government.
The MSCI China Index rose 3.5% in February, whilst the CSI 300 Index finally played catch up, surging 14.6% and delivering the best monthly performance in nearly 4 years.

The catalysts understood to be President Xi’s speech, which stressed the importance of the capital market alongside the anticipated increased weighting of A shares in the MSCI indices. Sector wise, technology, insurance and brokers outperformed, while banks and telcos underperformed.

In February, US President Trump tweeted that the US had made substantial progress in trade talks with China and would delay imposing additional tariffs that were originally scheduled to come into effect on the 1st March.

A meeting between the two Presidents was also suggested for the near future. Based on this pace, a trade deal is just a matter of time in the Investment Adviser’s opinion.

Trade and credit growth was much better than expected in January. Chinese banks granted Rmb 3.2 trillion in new loans, whilst total social financing reached a record high of Rmb 4.6 trillion. In the Investment Adviser’s view, it is clear that deleveraging is no longer on the government’s agenda. The technology sector had a strong comeback despite profit warnings from names such as AAC Technology and Sunny Optical. The release of foldable phones and 5G models by major brands sparked excitement in the market. The government announced new regulations against underground banks to block loopholes which allow capital outflows, which took effect in February and negatively impact the VIP segment of Macau gaming.

The Fund gained 3.1% in February, with the Fund’s overweight in insurance adding value, whilst the Fund’s overweight to property, which underperformed, constituted a drag on performance. Exposure to the insurance sector added 1.4% to the Fund’s NAV, whereas exposure to the property sector detracted 0.6% from the Fund’s performance. The team reduced the Fund’s exposure to the property sector after having taken profit following the strong outperformance since last November.

The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 18/03/19 and are based on internal research and modeling.