Aggressive rebound for China

The local bourse staged a vengeful rebound in November. The long-awaited COVID relaxation and property support measures came out shortly after the 20th Party Congress meeting. The MSCI China Total Return Index jumped 29.7% and recouped the loss from the previous month. The Renminbi against the USD also climbed 2.9%, from the low for the year in October, partly thanks to a softer USD given better than expected inflation in the US.

Fund Commentary
20 Dec 2022

The local bourse staged a vengeful rebound in November. The long-awaited COVID relaxation and property support measures came out shortly after the 20th Party Congress meeting. The MSCI China Total Return Index jumped 29.7% and recouped the loss from the previous month. The Renminbi against the USD also climbed 2.9%, from the low for the year in October, partly thanks to a softer USD given better than expected inflation in the US.

Investors were excited about China reopening. The government announced new guidelines regarding their COVID policy, including: reducing inbound travel quarantine requirements from 10 days to 8; less frequent COVID testing; and home quarantine instead of camp quarantine for the infected. The government stressed optimisation of the COVID measures, though no longer mentioning “zero COVID”.

A wave of supportive policies came to the rescue of the property sector. The People’s Bank of China (PBoC) released 16 measures to support the sector. This included lending RMB 250Bn to the sector via banks and relaxing access to pre-sale funds for developers. It also cut the Reserve Requirement Ratio (RRR) by 25 bps for the second time since April this year, to release more liquidity into the banking system. It was followed by China Securities Regulatory Commission (CSRC) which then made a statement that gave listed property companies the greenlight to issue new shares, with the aim of strengthening their capital base.

The Macau Gaming sector enjoyed a strong run in the month on the back of the reopening theme and removal of the overhang following the release of the license bidding result. The six incumbent license holders won the bidding, with another 10 years of operation granted. That being said, November gross gaming revenue remained at only 13% of the 2019 level. Inbound traffic from China remained lacking due to a resurgence of COVID cases, even though Macau resumed the e-visa scheme earlier in the month.

The Strategic China Panda Fund climbed 25.9% during the month. We topped up the portfolio’s weighting to the Internet and Property sectors on the back of the policy support measures. Banking stocks, being defensive plays, were the funding source. The COVID policy shift and big policy support for the Property sector should, we believe, have marked the bottom for the market. We expect market re-rating potential for Chinese stocks as the economy recovers.

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 15/12/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.