Retail sales and tourist arrivals in HK surprise on the upside

BY LILIAN CO

Monthly Fund Commentary
25 Jun 2018

BY LILIAN CO

In May, investor sentiment regarding China stocks kept improving as the market digested macro events like interest rate hikes and noises surrounding the trade dispute between China and the US.

The MSCI China and CSI 300 indices returned 1.8% and 1.4% respectively, with market volatility however remaining high due to President Trump’s continuously changing stance on China and North Korea. During the month, technology, energy, Hong Kong retailers, education and pharmaceuticals outperformed, while banks (including property) underperformed.

Technology stocks experienced a roller-coaster ride in May, owing to weaker-thanexpected Q1 2018 earnings reported by AAC, unforeseen profit warnings of other key component players as well as President Trump’s unexpected tweet indicating his willingness to lift sanctions against China’s ZTE.

Throughout the month, exporters generally showed signs of margin pressure following a spike in raw material costs, while energy stocks had a good run on the back of soaring crude oil prices. Investors continued to chase HK retailing stocks on stronger than expected same-store sales growth reported by selective companies. Overall, retail sales growth and a rise in tourist arrivals in HK also surprised on the upside.

The Fund gained 3.3% in May, outperforming its benchmark by 1.5 percentage points. The comeback of the technology hardware & equipment sector, in which the Fund is overweight, and the underperformance of banks, in which the Fund is underweight, contributed to the outperformance.* The Investment Adviser increased the portfolio’s exposure to Macau gaming and HK retailers during the month.

The team expects the market to rise in the second half of the year as uncertainty surrounding macro headwinds will fade. The Chinese market is currently attractive at only 11.58x P/E 2019.

*Source: BBG PORT. Overweightings and underweightings depicted according to the GICS industry group classification.

The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 12/06/18 and are based on internal research and modelling.