Out with the new, in with the old

The stock market was characterised by acute sector rotation from the new economy to the old economy last month. The bombed-out cyclicals took a bullish turn in early November following the news of encouraging results of a COVID-19 vaccine from Pfizer.

Monthly Fund Commentary
17 Dec 2020

The stock market was characterised by acute sector rotation from the new economy to the old economy last month. The bombed-out cyclicals took a bullish turn in early November following the news of encouraging results of a COVID-19 vaccine from Pfizer.

Although the MSCI China Total Return Index returned +2.8% during the month, performance across sectors was divergent, with internet stocks (a beneficiary of the pandemic) down MoM while banking, automobile, airline, retailers and Macau gaming stocks rallied. The last-minute cancellation of the Ant Group IPO and news that anti-trust laws were being drafted, targeting the internet sector also exacerbated the selloff within the sector.

Sino-US relations have not improved, even though Donald Trump lost the Presidential election. The US continues to take a hard-line approach towards China as a final attempt to contain the latter. Donald Trump signed an executive order to ban US pension and investment funds from investing in 31 Chinese companies (including a number of names in the MSCI China index) allegedly associated with the Chinese military.

It remains to be seen if Joe Biden, the US President-elect, will adopt an alternative approach towards China when he takes office next year. Our view is that he is unlikely to escalate tensions further, and so consider his win to be positive for China.

Domestically, the Government still advocates boosting consumption in order to drive an economic recovery. In a recent speech, Premier Li called for more subsidies from local governments to the auto and home appliance industries. We would not be surprised if further supportive policies are implemented should the economic recovery stall.

The Strategic China Panda Fund returned +4.2% in November, outperforming the index by 1.4%. The Fund’s underweight in Tencent and Alibaba added value. The shift in sentiment favouring the “old economy” lifted share prices for retail, property and shipping names that are overweight in the portfolio. We took this opportunity to add internet stocks, buying into the weakness and topped up consumer stocks that are expected to be beneficiaries of the vaccine.

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Adam TurbervilleAdam Turberville
Head of Marketing & Client Relations
+44 1481 742380
a.turberville@ericsturdza.com

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The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 14/12/2020 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.