Whilst January proved an anti-climax for A shares. H shares played catch up, having lagged the A share market by a significant margin in December. There was divergent performance between the two China markets, with the MSCI China Index up 2.3% whilst the CSI 300 Index was down 2.8% during the month.
The bullish sentiment in the A share market was halted after the regulator suspended the major brokers from opening new margin accounts for three months and asked banks to tighten lending for use in stock market trading. Financials, which led the rally in December, took a breather in January. The outperformers were the yield stocks, e.g. utilities and REITs. The launch of the quantitative easing program by the European Central Bank not only triggered a sharp fall of the Euro but also bond yield compression with the US 10 year bond yield dipping below 2%. Exporters also performed well as they benefited from weakness in both commodity prices and the Chinese currency.
China reported 7.4% GDP growth in 2014 which is roughly in line with the Government’s target of 7.5%. This implies a 7.3% GDP growth in 4Q14 (in line with 3Q14). It is likely that the Government will set a GDP growth target for 2015 of 7%, a further moderation in expansion given the structural adjustment China is undergoing. Recently released macro data remains soft; PMI, the leading indicator of economic activity, continues to trend down to 50.1 as of December. The Investment Adviser believes that interest rate and reserve requirement rate cuts from the Government will curb the slowdown in growth.
The benefits of the relaxation measures are slowly filtering through to the property sector. The property transaction volume has shown an increase since the fourth quarter and the average property price in the major 100 cities finally recorded a 0.2% month on month gain in January after eight consecutive months of decline. The Investment Adviser expects the recovery to gather pace as more rate cuts occur.
The Fund was up 2.01% in the month. The Investment Adviser raised the exposure of the Fund to the Chinese property sector by 3% to 8.8% and took profit in Tencent after the strong run during the month. The A and B share exposure reached 21% of NAV, whilst the cash position was maintained at approximately 3.5%.
Commentary provided by LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 13/02/15.