The stock market rebound which started in late March extended into April. Investor anxiety calmed due to the unprecedented stimulus measures introduced by central banks and talks of the re-opening of major economies.
Both the MSCI China Total Return Index and the CSI 300 index climbed during the month, by 6.3% and 6.1% respectively.
Wuhan, the epicentre of COVID-19 and the last remaining Chinese city under lockdown, also re-opened. In the western world, more countries including the US were planning to relax containment measures in May.
First quarter GDP in China contracted by 6.8%, which was no surprise to the market given the countrywide lockdown. The Investment Adviser believes that the economy should have reached the bottom in February and slowly recover over the next few quarters now that economic activities are picking up with the removal of lockdowns which commenced in March.
The extent of the recovery in the second half will however depend on the speed at which economies in Europe and the US re-open. All economic data in March has pointed to a marked recovery compared to the levels seen in February.
The high-end spirits sector recorded impressive low-teen sales growth in the first quarter, proving that demand was resilient regardless of the adverse economic conditions.
Macau casino operators are optimistic about the relaxation of travel restriction from China to Macau as early as mid May, as the number of new coronavirus cases has come down dramatically. The HK government has also announced a series of relief measures (including salary subsidies to corporates, rent subsidies to retailers and $10,000 cash to each HK citizen) to ease short term economic pain.
The Strategic China Panda Fund returned 8.6% in April, outperforming the benchmark by 1.9%. The portfolio’s real estate, Macau gaming and sportswear exposures were the major contributors to the outperformance.
The Team expects consolidation after the recent market rally as benefits from stimulus measures have yet to be passed through to the real economy, while corporate earnings in the second quarter will remain depressed.
The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 13/05/2020 and are based on internal research and modelling.