Renminbi devaluation brings down EM currencies & commodity prices

BY LILIAN CO

Monthly Fund Commentary
18 Jan 2016

BY LILIAN CO

The market continued to drift downwards with the MSCI China index down 1.3% in December. Buying interest was low ahead of the year end. The continued Renminbi devaluation and plunging oil prices did not help either. US ADRs, boosted by the Qihoo privatization deal finalization, continued to do well. Oil & gas, technology, shipping and railway related stocks led the decline while properties, banks, brokers and exporters advanced. A-shares continued to outperform H shares with the CSI300 up 4.6% in the month.  

With a stabilizing A-share market, the Chinese Government was active in rolling out financial policies such as the introduction of an A-share circuit breaker and a registration based IPO system. SOE reform was also stepped up with restructuring and new policies announced in the shipping, oil and gas and IPP sectors. Expectations were raised of more supportive policies in the property market after talk of an inventory cut by President Xi. The Government also announced “supply-side” reforms that aim to curb excess capacity. Given the subdued demand outlook, we see supply side reform as the right strategy to put the economy back to balanced growth in the long term.

As soon as it was included into the reserve currency basket of IMF in November, the Renminbi resumed its devaluation, bringing down with it the currencies of other emerging markets and commodity prices.

The fund was up 0.5% in December, bringing the full year decline to 1.5%. This was against a decline of 7.7% for the MSCI China total return index. Sector wise, auto and property stocks were the major contributors in December with returning +0.75% and +0.53% respectively. Cash levels remained stable at around 5-6%.  

The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 11/01/16 and are based on internal research and modelling.