Chinese shares continue their uptrend

In April, investors’ risk appetite rose on hopes for an imminent trade deal and, alongside an improving macro environment, lifted Chinese shares further. The MSCI China Total Return Index and the CSI 300 Index rose 2.2% and 1.1% respectively, constituting their fourth consecutive up month. During the month, Chinese liquor and auto stocks outperformed, while brokerage and Chinese property stocks underperformed.

Monthly Fund Commentary
20 May 2019

In April, investors’ risk appetite rose on hopes for an imminent trade deal and, alongside an improving macro environment, lifted Chinese shares further. The MSCI China Total Return Index and the CSI 300 Index rose 2.2% and 1.1% respectively, constituting their fourth consecutive up month. During the month, Chinese liquor and auto stocks outperformed, while brokerage and Chinese property stocks underperformed.

After the economic slowdown in the second half of 2018, March macro data pointed to a stabilising economic trend. Q1 GDP grew by 6.4% YoY, in line with the Q4 2018 growth rate. The PMI came in better than expected at 50.5, returning to an expansionary trend after three months of contraction, as indicated by a PMI lower than 50. In April, credit and trade growth positively surprised the market, with the economy starting to respond to the increased monetary and fiscal stimuli alongside easing trade war concerns.

Performance of Chinese liquor companies remained strong in April given solid first quarter results, with high-end liquor stocks having reported above 20% growth in revenue and profit. According to the Investment Adviser, the growth of the high-end liquor market remains respectable following the consumption upgrade. This said, the team perceive rich stock valuations as a short-term risk.

The decline in auto sales slowed down in March, spurring expectations of the industry bottoming out. The Investment Adviser however thinks that it is too early to understand this as a turnaround.
Property stocks took a breather in April after a strong YTD performance. Investors took the government’s less dovish tone regarding the property sector as an excuse to take profit. During the month, share placement risk also acted as an overhang to the sector.

The Fund gained 0.5% in April, taking its YTD performance to a strong 19.65%. The Fund’s overweight to the property sector constituted the largest drag on performance (-1.7% contribution to return).

The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 15/05/19 and are based on internal research and modeling.