Consumption up, inflation stable

The stock market stabilised in April, with the MSCI China Total Return Index up 1.4%, following the sharp downturn since February.

Fund Commentary
20 May 2021

The stock market stabilised in April, with the MSCI China Total Return Index up 1.4%, following the sharp downturn since February.

The softening of the US 10-year bond yield from the high level seen in March and the final verdict of the RMB 18.2bn fine on Alibaba announced by the government, cleared a significant market overhang. Sector-wise, the suffering Internet sector had a mild recovery and the Sportswear and Shipping sectors also had a strong run during the month.

China’s GDP growth rebounded by 18.3% in the first quarter of 2021, thanks to the low base experienced in the same period last year. Macro data for March pointed to a speedy recovery with PMI and retail sales growth reaching 51.9 and 34.2% respectively, the highest reading year-to-date, while inflation remained benign, with the CPI at 0.4%.

Investor concerns over internet policy risk abated following the RMB 18.2bn fine imposed on Alibaba by the government. This is equivalent to 4% of the company’s 2019 sales and has set the benchmark for the sector. The share price of Alibaba jumped immediately on the back of the news as this major stock overhang disappeared.

Market attention then shifted to Meituan which was also under investigation for abusing market dominance. In addition, 34 Internet companies were urged to conduct self-inspection and correct any anti-competition practices.

We believe that the increased regulatory oversight should lead to healthy long-term development within the Internet sector. We see the recent market dip as a good opportunity to accumulate quality names.

The Strategic China Panda Fund climbed 4.3% in April, outperforming the benchmark by 2.9%. Sportswear, Biotech and Shipping stocks were the biggest contributors to outperformance. We will look to buy into weakness among the leading Internet names as we believe the Internet sector is down but not out. The secular growth story remains intact.

As always, we invite investors and prospective investors, to get in touch if you would like to discuss the positions held in the portfolio or require further information.

Adam TurbervilleAdam Turberville
+44 1481 742380

The views and statements contained herein, including those pertaining to contribution analysis, are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 15/05/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.

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