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.
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.
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.
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.
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.
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.
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.
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.
The content or fund you have selected is not available for the profile or region you have selected.
Please select one of the options below to return to the site.