Non-stop market rally


Fund Commentary
21 Dec 2017


In November, the China stock market rally was unstoppable. The MSCI China Index and the CSI 300 Index soared 6.9% and 5.9% intra-month respectively, despite profit taking during the last week of the month.

Throughout the month, the MSCI China Index gained 1.6%, while the CSI 300 gave back the previous gains and ended the month almost unchanged. November marks the eleventh consecutive up month for the MSCI China this year, a new record.

Sector wise, Information Technology was among the star performing sectors as market sentiment was boosted by the strong debut of a few large internet IPOs. Tencent, one of the largest internet and technology companies in the world, gained as much as 23% intra month before giving back much of the gain at month end. Other sectors which outperformed included Hong Kong banks (in anticipation of the US rate hike in December) and Macau gaming (on stronger than expected gaming revenue).

President Trump’s first state visit to China in early November was a non-event. Throughout the month, the Chinese government on the one hand announced the plan to allow full foreign ownership in financial industries (versus a limited stake of 50% at the moment) over the next few years. The Investment Adviser perceives this as positive for the long term development of financial industries in China. On the other hand however, the government announced tightened regulations for online micro-lending. Consequentially, all “fintech” peer-to-peer (P2P) stocks plummeted.

Macro data such as the Purchasing Manager Index (PMI), industrial output and retail sales growth generally showed some slowdown, but posted no major surprises. The Investment Adviser thinks that the market is well prepared for moderate economic growth over the next few quarters as financial deleveraging continues. The team sees no hard landing risks though, since the deleveraging is taking place in a controlled manner.

The Fund gained 1.4% in November, slightly below its benchmark (1.6%). The team took some profit in Technology, Media and Telecommunications (TMT) names and added some exposure to auto stocks. After eleven straight months of gains, the Investment Adviser anticipates some profit taking risk in December, as investors attempt to lock in lucrative profits for the year. Any market weakness will depict a buying opportunity as China fundamentals remain intact and market P/E reasonable at 13x 2018.

The views and statements contained herein are those of the LBN Advisers Limited in their capacity as Investment Advisers to the Fund as of 15/12/2017 and are based on internal research and modelling.