Correction eventually set in

BY LILIAN CO

Monthly Fund Commentary
23 Mar 2018

BY LILIAN CO

In February, the MSCI China Index declined by 6.4%, ending a thirteen month long winning streak, with the A share market faring slightly better and the CSI 300 Index losing 5.9%.

The long overdue correction was triggered by the US market, which plunged on the back of inflation fear. The decline was exacerbated by profit taking ahead of the Chinese New Year and renewed concerns about financial deleveraging, as the unwinding of wealth management and trust products (to meet new regulation requirements) led to the forced selling of a number of A shares. Stocks which had performed well in January, such as properties and banks, saw the largest pull back among blue chip stocks, with technology and auto stocks however bucking the down trend. Against the backdrop of escalating trade protectionism in the US, the Investment Adviser expects the market to remain jittery in the near term.

Throughout the month, Chinese macro data continued to look good, with export figures increasing 44.5% YoY. The softening of the Purchasing Managers’ Index (PMI) to 50.3% MoM was expected due to the effects of the Chinese New Year. During the team’s conversation with a few listed companies, some Hong Kong retailers reported doubledigit same-store-sales growth on the back of a large number of mainland travellers (+15%). Further, mainland box office sales soared during the first six days of the Chinese New Year holidays. Later in the month, the result season kicked off, with no surprises so far.

During the month, the Fund lost 3.5%, outperforming its benchmark by 2.9 percentage points, with the outperformance partly attributable to the Investment Adviser’s underweight in banks, which underperformed during the month. The Fund’s overweight exposure to technology and auto stocks bucked the down trend and contributed 1.44% and 0.35% to the Fund’s outperformance respectively. The team decided to take the market weakness as an opportunity to buy into Chinese properties.

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