China and the USA: Back and Forth

In September, trade news and escalating protests in HK remained the swaying factors of the stock market. The MSCI China Index was flat, while the CSI 300 Index gained 0.4% in September. Onshore China stocks (A and B shares) continued to outperform HK-listed stocks as the protracted social unrest in HK led to further fund outflows from HK to China, with the technology sector outperforming, while the healthcare sector underperformed.

Monthly Fund Commentary
25 Oct 2019

In September, trade news and escalating protests in HK remained the swaying factors of the stock market. The MSCI China Index was flat, while the CSI 300 Index gained 0.4% in September. Onshore China stocks (A and B shares) continued to outperform HK-listed stocks as the protracted social unrest in HK led to further fund outflows from HK to China, with the technology sector outperforming, while the healthcare sector underperformed.

Market concerns regarding trade war issues were eased somewhat as China and the US agreed to resume talks in Washington in October, which was followed by the US delaying a further 5% punitive import tariff on US$250 billion worth of Chinese goods from 1st October to 15th October. Meanwhile, China’s central bank cut the required reserve ratio for all commercial banks to free up long-term funding of around Rmb900 billion as a way to shore up liquidity. The subsequent stock market rally was however short-lived and entirely wiped out by the end of the month as investors were not convinced of a possible trade deal. News of the US government looking into limiting US investment in Chinese equities, especially Chinese ADRs, led to panic-selling of Chinese ADRs like Alibaba and JD.

In September, handset component and semi-conductor stocks spiked on better than expected global sales of the new iPhone model and a positive 5G outlook. During the month, the healthcare sector underperformed due to the higher-than-expected price cut of around 25% in the latest round of centralised procurement. HK retail sales dipped further as increasingly violent protests kept consumers away.

The Fund gained 0.3% during the month, outperforming its benchmark by 0.3%. Exposure to the real estate sector, which gained after the sell-off in August, was increased, constituting the largest monthly contributor to the Fund’s outperformance (0.54%). The team also further increased the portfolio’s exposure to auto stocks given the current market weakness.

 

The views and statements contained herein are those of the Eric Sturdza Group in their capacity as Investment Advisers to the Funds as of 11/10/2019 and are based on internal research and modelling.