China – Value emerging once again

BY LILIAN CO

Monthly Fund Commentary
21 Dec 2016

BY LILIAN CO

The market remained soft with MSCI China total return index down 1.17% in the month. The strong US dollar and fund outflows from emerging markets including China to the US post the presidential election weighed on the market despite better than expected macro data.

The Shenzhen-HK stock connect was finally given the green light. It failed to excite the market however as the news had long been expected. Sector wise, banks and insurance stocks outperformed on rising bond yield. TMT stocks however were under selling pressure. Being outperformers year to date, TMT stocks were clearly investors’ funding source for the purchase of financial stocks. Exporters also underperformed on concern of potential punitive import tax imposed by the US once Trump takes office. In contrast, the A share market continued to run with CSI 300 index up 6.05%. Buying of value blue chip stocks by insurance companies lifted market sentiment.

Macro wise, October PMI and PPI were better than expected. Sustained PMI above 50 (51.2 in October) suggests a broad based recovery is under way while PPI at 1.2%, back to positive after a few years of decline, suggests bottoming out of earnings of manufacturers. Accelerating infrastructure projects should also offset the slowdown in property investment post policy tightening. As such, we expect 4Q GDP growth to stay elevated.

The Fund declined 1.28% in November, slightly underperforming the benchmark by 6bps. The underweight in financials hurt Fund performance while the underweight in internet and overweight in paper segment added value. The Investment Adviser sees short term market weakness to prevail as asset reallocation from emerging markets to the US by global investors is likely to persist until year end. The Portfolio Manager sees buying opportunities on selective blue chip names. Value is emerging again.

 

The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 14/12/16 and are based on internal research and modelling.