After the rally in June, the market moved without clear direction in July. The MSCI China Index declined -0.5% during the month, while the CSI 300 index gained 0.3%. On a stock-level, sportswear, healthcare and technology stocks outperformed, while REITs, Hong Kong retail and property (including Chinese property) stocks underperformed.
GDP growth slowed from 6.4% in Q1 to 6.2% in Q2 against the impact of the protracted trade war. According to the Investment Adviser, this figure was generally expected by the market. In China, YoY retail sales grew by 9.8% in June, up from 7.2% and 8.6% YoY growth in April and May respectively, indicating resilient domestic consumption despite a slowing economy. The latest Politburo meeting reiterated the Government’s proactive fiscal policy and prudent monetary policy stance, in-line with the previous policy.
During the month, Hong Kong retail and property stocks underperformed, as did REITs. Hong Kong’s protests, which have been ongoing since June and recently been subject to escalating violence, have started to hurt retail sales, which were down 6.7% YoY in July, with retail companies also reporting declining sales growth in June. The Investment Adviser expects the protests to continue for another month or two, but believes that they are likely to gradually die down, referring to the last big scale protest as a guide, which took place in 2014 and lasted for 79 days.
For the first time, the Chinese government explicitly stated that China would not use the property market as a short-term measure to stimulate the economy. Against this background and coupled with the tightening of property trust financing, investors sold Chinese property stocks, despite healthy monthly property sales growth.
The Fund declined -0.4% in July, outperforming its benchmark by 0.1%. During the month, exposure to sportswear stocks contributed most significantly to return, having gained 1.3%. On the other side of the spectrum, the real estate sector dragged on performance, with a -0.9% contribution to return.
The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 14/08/19 and are based on internal research and modeling.