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Chindia Equity Fund - February 2019

Catalysts for the Chinese equities rally in January include expectations for a positive outcome to the US-China trade impasse as well as a softening rhetoric on further US Federal Reserve rate rises.


  • Catalysts for the China rally are growing expectations over a positive outcome to the US-China trade tariff impasse and softening US Federal Reserve (the Fed) rhetoric on the frequency and magnitude of further interest rate rises.
  • Indian equity markets showed signs of recovery into the month end, following an undulating start to the year, with weakness surrounding the auto-related manufacturers holding back performance during the period.

Monthly performance

The Chindia Equity Fund (‘I-class’) returned 0.46% in January, versus 8.78% for the benchmark (MSCI Emerging Markets). MSCI China and MSCI India returned 11.1% and -1.89% on the month respectively. 

Market update

China   China

January’s equity market rally catalysts included growing expectations for a positive outcome to the US-China trade tariff impasse and a softening US Federal Reserve rhetoric. This should result in a weaker US dollar, relative to Asian and emerging market currencies. Historically this has been good news for emerging market investors, given the longstanding negative correlation (-0.70 since 2000) between US dollar strength and the MSCI Emerging Markets Index performance.

India   India

Despite being one of the strongest emerging markets in 2018, Indian equities have made a slow start to the New Year. India imports c.80% of its oil requirements, and a rising oil price has held back returns in January with all but two sectors, IT and real estate, giving up gains made towards the end of 2018.

Fund positioning

Country exposure

Our capital allocation model seeks to generate positive alpha on balance, through cycles, by actively tilting the country exposure between China and India. The current model signal is neutral, advocating a close-to 50% allocation to both countries. 

China   China

Fund positioning remained consistent with respect to stock selection this month. We have maintained our high exposure to the industrials, real estate and telecommunications sectors, funded by significant underweights to information technology and communication services, relative to the MSCI China Index. These two underweight sector positions have been in place for an extended period of time.

India   India

In January we sold both Hindalco, India’s leading aluminium manufacturer and Ramco Cements, and used the funds raised to top up a position in Axis Bank, State Bank of India, as well as HCL Tech. In addition to increasing our overweight to both banking and IT, we increased the overweight to consumer discretionary stocks with the new purchase of Mahindra & Mahindra (MM), one of India’s leading agricultural vehicle manufacturers.


China   China

Recent market volatility has challenged the assumptions from the Fed; that rates can continue rising without a serious impact to US growth and also from President Trump; that America’s economy will be immune to trade war outcomes.

Whilst this has clearly boosted short-term sentiment, for China to outperform over a longer-term horizon, Beijing needs to continue boosting private sector and consumption led demand. We expect progressive easing in monetary stimulus and an easing of some of the more aggressive policy measures on the country’s new-economy sectors to boost growth.


India   India

The interim budget was announced on 1 February 2019 and, as hotly anticipated, was focused on populist measures and had keen eye on the upcoming national elections. Farmers, the low to middle income earners, and real estate were the prime beneficiaries of the announcements made. The government marginally relaxed its fiscal deficit target, and announced a sale of US$100bn bonds to finance investments in railways, defence as well as a raft of other measures to woo the 70% of the population that are living in rural areas. Their support will be critical for Prime Minister Modi to secure a second term come the elections in April or May 2019. We continue to identify stocks that will benefit from these announcements, and expect favourable entry points in the coming months.