Chindia Equity Fund - January 2020

Summary

  • December was another strong month for equity markets with many regional indices reaching new all-time highs. The Chindia fund rose 4.5%
  • The Chinese equity market finished the year very strongly with market rising 8.4%. The performance of the China portion of the portfolio was strong returning 9.2%. Double digit returns were provided by four holdings and Tencent, an 8% position, returned 11.1%. The Indian market was much more subdued with the market returning 1.8%
  • As planned trading activity was minimal.

 

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Market update

In stark contrast to 2018, December 2019 saw a Santa Claus rally with global equities performing strongly and many markets reaching new all-time highs.

The announcement of agreement on phase one of a trade deal between the USA and China was received positively. China continues to face the biggest political crisis since the late 1980s. Street battles between police and protesters persisted into the New Year in Hong Kong. 520 police officers and many protesters have now been injured. Defusing the trouble ought to be a priority for both sides. In early January China replaced their top official with Luo Huining. Luo has a doctorate in economics and has previously cleaned up corruption in the Shanxi province. We do not envy the difficulties that will be faced in aiming for peaceful resolution on all sides. We therefore continue to invest in companies with limited direct exposures to the Hong Kong economy.

In line with recent months, the China portion of the strategy continued to benefit from good stock selection. During December, the Chinese period returned 9.2% versus the Chinese market return of 8.4%. Tencent, an 8% position, returned 11.1% during the month. Our understanding is that, following delays in Government approval, new content produced by the company has begun to be released through their social media and streaming platforms. This ought to enable an increase in monetisation opportunities, including advertising.

The Indian market was much more subdued with the market returning 1.8%. 2019 has been a poor year for India economically with continued reductions in growth expectations. So far the September manufacturing sector corporate tax reductions appear to have had little impact on industrial production. Labour and land acquisition laws also likely need to be simplified to stimulate activity in an effort to increase manufacturing from the stagnated 15%, to Prime Minister Modi’s target of 25% of GDP. The long run potential for India remains high but it seems likely reforms are needed to stimulate the economy.

As planned trading activity was minimal.