Chindia Equity Fund - September 2019

 

Summary

  • Chinese equity markets continue to see heightened volatility and falling returns as trade wars between the world’s two largest economies escalate.
  • India’s quarterly GDP fell to its lowest rate in six years in Q2 2019.

Monthly performance

  • The Ashburton Chindia Equity Fund returned -5% during August, with the benchmark (MSCI EM GR USD) returning -4.85%.
  • MSCI China returned -4.18% in August. Sectors that detracted the most value were communication services (-8.11%) and financials (-6.35%). Consumer discretionary was the largest contributor (1.58%).
  • MSCI India returned -2.92% in July. Sectors that detracted the most value were financials (-5.47%) and materials (-7.8%). Energy was the only positive contributor (0.13%)


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Market update

China   China

With no sign of a truce in the saga that is the US-China trade war, Chinese equity markets experienced yet another volatile and negative performing month. Both sides raised the stakes this month with announcements of yet more tariffs. Adding to the excitement, the US Treasury also declared China to be a currency manipulator on the 6 August after the yuan sunk to 7 against the US dollar; its lowest level in 11 years.

The negative implications of the trade war continue to appear as GDP figures from the world’s two largest economies continued to fall with worsening business investments and a widening current account deficit in the US and worsening manufacturing figures in China.

India   India

Indian equities continued to fall in August as the country’s economy recorded its worst quarterly growth rate for over six years. Q2 2019 GDP grew 5% year-on-year, slowing from 5.8% in Q1 and missing consensus for the quarter of 5.7%. The countries auto and manufacturing sectors continued to weaken along with the consumer sector.

Fund positioning  

China   China

 

As a consequence of our recent initiative to move the China strategy to quarterly, rather than monthly rebalancing, the strategy has retained the same sectoral weightings.

India   India

 

The strategy has retained the same sectoral weightings as last month.


Outlook

China   China

 

The US and China trade war has escalated throughout August. With little sign of the end, further volatility in the Chinese equity market is highly likely. With decelerating Chinese economic growth it is likely the market will look to Beijing for more supportive policies, these should help buoy the equity markets.

India   India

 

In this environment of falling economic growth, waning consumer and investor sentiment along with geopolitical headwinds such as escalating trade wars it is likely that investors look to fiscal and monetary policy to reinvigorate consumer demand and corporate investments.