BY LILIAN CO
In April, China stocks stabilised after the correction in the first quarter. During the month, the MSCI China Index was flat following the Sino-US trade dispute, fears surrounding a US rate hike and financial deleveraging.
Financials, China Telcos, Oil majors, HK retailers and Macau gaming outperformed, while internet, auto and technology names underperformed. The month started with a surprise announcement of various market reforms by President Xi at the Boao Forum. Financial and auto sectors will see large-scale reforms ranging from allowing majority foreign ownership to reduced import tariffs on foreign goods. Against this backdrop and fears about increasing foreign competition, auto stocks were sold heavily, whilst the technology sector was hit hard in April following a sudden move by the US government to slap a seven-year technology components export ban to the Chinese Company ZTE, spooking the market. Consequentially, all technology stocks in the Company’s supply chain suffered.
Meanwhile, banking stocks performed well on the back of good Q1 2018 results with in line earnings and strong pre-provisioning profit. A surprise cut of the RRR (reserve requirement ratio) further boosted investor sentiment regarding the sector. Retail sales growth keeps accelerating in HK on the back of the return of mainland tourists, with retailers continuing to report better than expected same-store sales growth. Even Macau gaming revenue growth keeps beating market expectations.
China’s March macro data, except trade data, was largely in-line with expectations. Exports were subject to a surprise decline of 9.8% YoY, likely due to a strong Renminbi, representing the first decline since 2016. Inflation on the other hand remained in check, with both PPI and CPI slightly lower than expected. Led by inflation fears, the US 10 year bond yield spiked to above 3% during the month, triggering a HIBOR rate spike, with the HK dollar to USD trading at the lower end of the peg. The Investment Adviser is however comfortable that the HK dollar peg remains stable given ample liquidity in the system.
The Fund was down 1.6% during the month, underperforming the benchmark. According to the Investment Adviser, the Fund’s performance was mainly impacted by the portfolio’s exposure to Telecommunications, Media and Technology (TMT) - sectors, which were under heavy selling pressure during the period. Going forward, the team thinks that the market is likely to see through the noise created by the Sino-US trade dispute. In the Investment Adviser’s opinion, a deal between China and the US, rather than an outright trade war, is likely to be reached.
The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 14/05/18 and are based on internal research and modelling.