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Chindia Equity Fund - July 2018

Latest sell-off in China seems prompted by Trump’s focus on trade agenda.


  • US President Trump’s decision to escalate the trade agenda appears to be the rationale underpinning the latest sell off in China.
  • The Reserve Bank of India (RBI) raised interest rates by 25bps in a surprise move in June, the first such rise in four years as they sought to nip inflationary pressures in the bud.Their stance remains neutral, rather than one of tightening.
  • India’s equity markets have been under pressure this year primarily due to external factors with global sentiment deteriorating, rather than on specific Indian economy fears.The underlying fundamentals for India remain intact, and we seek to utilise the valuation opportunities to invest in growth companies for the long term.

Despite a strong start to the month, the MSCI China Index had a sharp correction from the middle of June and finished the month down -5.2%. Within the Fund we remained modestly overweight in China vs India.

Fund activity


Our China market model seeks to provide timely buy and sell signals, on balance, through cycles; the model turned ‘bullish’ on 10 May and remained bullish through June, although we have seen some deterioration in the strength of the signal in recent weeks.

The weakening momentum in our market timing model has motivated managers to move from a modest overweight China allocation to a neutral weighting currently. On equity portfolio composition, there is strong bias to domestically focused China companies. Real estate, industrials and healthcare are major overweight positions, almost entirely funded by an underweight to technology and e-commerce sectors, although it should be noted that the sector allocation is a function of bottom-up stock selection, not a discretionary view. Stock selection in aggregate produced negative alpha on the month, with consumer discretionary and utility companies the worst offenders. 


We topped up a collection of positions, particularly healthcare and information technology where valuations were a little more attractive at the outset of June and we seek to continue to exploit those moves in the coming months.  Performance has been very narrow throughout the year, with five large cap heavyweight stocks representing 35% of the MSCI India returning on average 20%. The Fund continues to invest across market capitalisations which over the long term will provide better returns. Currently, this approach has been temporarily lagging.

We have sold the entire position in logistics provider Gateway Distriparks following disappointment in the valuation for Blackrock’s exit.  Other pressures, such as increased competition and a deterioration of margins moving forward, prompted the sale.

The Fund remains underweight Indian equities at this time, a position it took in early 2018 as valuations, particularly in the mid-caps began to rollover and profit-taking along with external factors were taking prices lower.  Volatility is likely to remain, and market direction in the short-term to be uncertain, especially given the global external factors such as oil and President Trump adding pressures to the emerging markets.


Fund Managers, Craig Farley and Simon Finch, look back over the last few months' volatility within emerging markets and why they believe that China and India offer investors an attractive opportunity. Read more