China makes a full recovery

The China market had a strong start in January, with the MSCI China Total Return Index up 7.4%. Stock prices climbed following a substantial southbound inflow on the back of a strong pipeline of new fund launches in China.

Commentaire Mensuel
23 Fév 2021

The China market had a strong start in January, with the MSCI China Total Return Index up 7.4%. Stock prices climbed following a substantial southbound inflow on the back of a strong pipeline of new fund launches in China.

The inflow from mainland China totalled more than $40bn in January, compared to $7.7bn in December. The buying focused on new economy stocks such as New Energy Vehicles (NEV), Internet and Technology as well as Chinese companies sanctioned by the US.

Tencent and Meituan, two index heavyweights eligible for the stock connect program, were among the targets of southbound buying. They both jumped an impressive 20.8% in one month. More ADRs, like Baidu and Bilibili, announcing dual listing plans in HK further lifted sentiment for the Internet Sector. Even the resurgence of COVID-19 cases in northern China did not deter investor optimism.

China’s GDP growth accelerated to 6.5% in the fourth quarter, compared to 4.9% in the third quarter. Despite a free-fall in the first quarter, China managed to achieve 2.3% GDP growth for the full year. This made China the first among the major economies to fully recover from the pandemic, with positive GDP growth in 2020. We consider this remarkable as it was achieved without aggressive easing as seen in other major developed countries.

The Government released guidance on the Property Management Sector and the market responded positively. Details included an endorsement of a market-oriented Property Management fee mechanism, encouragement of community value-added services and the formation of owners’ committees. The market-oriented pricing mechanism is a big surprise as it implies the management fee cap set by local governments can be removed. This favours Property Management players that provide quality services as they have room to raise management fees in the long term.

The Strategic China Panda Fund was up 4.2% in January. The underweight in the Internet Sector and the overweight in the Property Sector were the largest detractors to the overall performance. We took advantage of the rally in Property Management stocks to lock in some profit.

We are positive with regard to the economic growth this year as vaccines are becoming more readily available. That being said, the stretched stock valuation is a short term risk. We will look to buy into weakness if there is a market correction.

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

The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 17/02/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.