Following 3 months of compelling performance, the market took a breather during September. The MSCI China total return index retreated 2.7%. The sell off of tech stocks in the US triggered profit taking in China, particularly within the Internet sector. Investor sentiment has become more cautious in the run up to the US Presidential Election.
Sector wise, Interactive Media, Diversified Banks, Technology and Pharmaceuticals underperformed the market while Automobiles, Internet and Sportswear outperformed. According to the latest macro data, the economy has largely recovered to near pre Covid-19 levels. Retail sales growth was back to black in August, up 0.5% YoY, the first positive monthly growth this year.
Manufacturing activity expanded in August with the PMI coming in at 51 while the CPI was steady at +2.4%. Export growth also increased further to 11.6% YoY from 10.4% YoY in July. SMIC, the technology supply chain, followed Huawei as the next Chinese company to be added to the US government’s blacklist, and sold off as a result.
The Chinese Property sector came under further pressure following news of China Evergrande’s financial difficulties, which raised concerns in the market and had a knock-on effect on the sector as a whole. In addition, more cities are reintroducing home purchase restrictions in an attempt to curb rising property prices.
The Strategic China Panda Fund declined 3.8% in September. Our overweight in the Real Estate and Technology Sectors were the main detractors from alpha, returning -1.0% and -0.7% for the month respectively. We used this dip in the market to top up Internet and Property Management stocks as their secular growth prospects look promising.
The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 14/10/2020 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.