By Lilian Co
The Chinese stock markets rebounded following a weak month in September. The growth scares in the US and Europe, plus the delay of Hong Kong Shanghai mutual market access, only had a brief negative effect on market sentiment. Buyers returned as investors gradually after digesting the impact of the Occupy Central protests in Hong Kong and weak macro data in China. Oil companies were the clear underperformers during the month as both oil and precious metals continued to fall in the face of a strong US dollar.
The Hong Kong retail sector was particularly weak with no end in sight for the Occupy Central protests. The data on tourist arrivals from the mainland saw an increase of only 5.4% during the October Golden Week holidays, a dramatic retracement from the 14.5% increase in the same period last year. Macau gaming revenue in October was another big disappointment (down 23% yoy) which, according to analysts, was mainly attributable to the recent non-smoking ban.
Elsewhere, primary property sales were bouyant, with multiple oversubscriptions for new projects and secondary property prices also followed suit.
Macro data releases in October were mixed, with China’s third quarter GDP growth reported at 7.3%, a slight deceleration from 7.5% in the prior quarter. The government however has continued with its policy of injecting liquidity and has also cut the repo rate to support the economy in preference to an outright interest rate cut. The Investment Adviser believes that the government will likely continue to roll out selective stimulus measures from time to time to contain the slowdown in growth.
Turning to performance, where the Fund was up 1.8%, versus a gain of 4.3% recorded by the MSCI China Index. Renewed speculation regarding the Hong Kong Shanghai mutual market access towards the month end triggered the purchase of index stocks. The Fund has limited exposure to these stocks, hence the underperformance in October.
The Investment Adviser took advantage of the weak sentiment in Macau to build a position in MGM China, the stock offers a high dividend yield which the Adviser believes will provide an element of downside support. Turning to A share exposure, the Adviser increased the Fund’s exposure to Daqin Railway and Qingdao Haier in light of better than expected third quarter results. Finally, profits were taken in certain pharmaceutical names as they looked to be fairly valued following the recent strong run.
Commentary provided by LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 11 November 2014