Pause and recover

The rapid escalation of tension between Ukraine and Russia continued to bring volatility to global stock markets. The WTI Oil price skyrocketed to $130 at one point and the US 10-Year Treasury rate surged well above 2% as inflation and global recession concerns deepened.

KOMMENTAR DES FONDS
21 Apr 2022

The rapid escalation of tension between Ukraine and Russia continued to bring volatility to global stock markets. The WTI Oil price skyrocketed to $130 at one point and the US 10-Year Treasury rate surged well above 2% as inflation and global recession concerns deepened.

China was further weighed down by a resurgence of Omicron cases in tier 1 cities that even put Shenzhen and Shanghai into lockdown. The MSCI China Total Return Index fell by a colossal 25% at one point, before rebounding and closing the month down 8%. Needless to say, high risk and high valuation stocks such as Consumer Discretionary, Biotech, Property and Internet sectors were hit the hardest.

The delisting risk of Chinese ADRs has resurfaced. The US regulator announced that five US-listed Chinese companies were added to the list, making them liable to the Holding Foreign Companies Accountable Act and non-compliance with this would subject them to delisting by 2024. This said, market worry eased after Chinese Vice Premier, Liu He, reiterated support of overseas listing and urged for more effective plans to ease the financial risks of developers. We believe that the potential ADR delisting is not new news. As most big names such as Baidu, Bilibili, Alibaba, Trip.com and Netease already have dual listing in HK, the delisting impact (if it goes ahead) should be manageable. Further share price weakness on the back of this should be viewed as buying opportunities.

The results season was a non-event as investors’ focus was on the macro outlook, and corporate guidance was generally conservative given the macro backdrop. The COVID resurgence has delayed the economic recovery in China, but we believe this is just a blip and expect more monetary and fiscal stimulus to shore up the economy. For one thing, the policy on the property market has turned accommodative since the fourth quarter last year, with more and more cities relaxing home purchase limits and lowering mortgage rates. We expect the physical property market to recover in the second half of the year at the latest (it would have been the second quarter if not for the spread of Omicron).

The Strategic China Panda Fund returned -10.1%, compared to the Benchmark’s -8.0%. The overweight in Shipping and Property related stocks were the main detractors. The weighting in Property was reduced while Macau Gaming positions were reintroduced as a post pandemic play. We believe the worst is over and the market should recover with more supportive measures from the government, albeit a bumpy ride.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

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The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 15/04/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.