China, back on track

The Chinese stock market resumed its upward trend in October following the September profit taking with the MSCI China Total Return Index gaining 5.3%. We believe the release of the new iPhone 12 contributed to the gains made by Technology stocks.

Monthly Fund Commentary
24 Nov 2020

The Chinese stock market resumed its upward trend in October following the September profit taking with the MSCI China Total Return Index gaining 5.3%. We believe the release of the new iPhone 12 contributed to the gains made by Technology stocks.

Investors were not perturbed by any uncertainty in the run up to the US Presidential election or the global resurgence of a second wave of COVID-19. Consumption, Internet, Auto and Banking sectors outperformed the benchmark while Property and Property Management sectors underperformed.

The recovery of domestic consumption is on track but tourism and leisure, whilst recovering, are still trailing overall retail sales growth. During the October Golden Week holiday, the Ministry of Commerce reported that daily retail sales were up 4.9%. Domestic tourist traffic recovered to 80% of the pre-COVID level, while tourism revenue recovered to about 70% of last year’s level.

Macau gaming returns remain disappointing. Gaming revenue declined 76% YoY during the Golden Week, with visitation down approx. 85% YoY. The Chinese government concluded the fifth plenum, an important Chinese political meeting, to discuss the 14th, 5-year plan (2021-2025). Self-reliance of technology and the strengthening of the domestic market are the key themes in the next 5-year plan.

China consumption stocks performed well. Several sportswear brands announced Q3 sales data showing that recovery is on-track. Anta had low single digit retail sales growth and Li Ning recorded mid-single digit retail sales growth. Home appliance companies also reported better-than-expected Q3 results on the back of increased demand.

The Property Management sector sold off during the month. This was due to profit taking, as a long pipeline of competing IPOs nearing term reduced investor interest in existing stocks. We have spoken to the management teams of the Property Management stocks held in our portfolio, they all reaffirmed growth guidance. We see this as a buying opportunity post share price correction.

The Strategic China Panda Fund was up 1.4% for October, compared to 5.3% for the benchmark. The Fund’s overweight to property developers and property management services companies were the main reasons for the lag. Real estate and commercial & professional services (mainly property management services) returned -2.3% and -1.9% respectively.


The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 15/11/2020 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.