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Chindia Equity Fund - July 2019



  • The Ashburton Chindia Equity Fund returned 1.95% during June, with the benchmark (50% MSCI China/50% MSCI India, TR USD) returning 3.92%.
  • MSCI China returned 8.1% in June, led by strength in the consumer discretionary and communications services sectors. Both sectors showed strength throughout the month following slightly weaker performance in May. There was a rotation back into larger market capitalisation stocks such as Tencent, Alibaba and
  • MSCI India returned -0.3%. The best performing sectors were utilities and information technology which were up 1.4% and 0.2% respectively. Energy and healthcare were the laggards returning -5.1% and -4.8% respectively.

Monthly performance

Ashburton Chindia Equity Fund returned 1.95% with the composite benchmark (50% MSCI China/50% MSCI India, TR USD) returning 3.92%.

Market update

China   China

Following the US increasing tariffs on US$200bn of Chinese products in May, China retaliated on 15 June with an additional 25% tariff on a number of US products being sent to China. The list targets US$45bn of US exports, with American farmers likely to be the worst hit. Oil, plastics, chemicals and medical equipment are also impacted. These additional tariffs are scheduled to take effect from 6 July 2019. 

Chinese June macro-economic data was strong. Industrial production, retail sales and fixed-asset investment all recovered sharply. The pickup seems to have been led by domestic demand. This provides some offset to the impacts of the on-going trade tensions.

Toward the end of June, we acted upon a buy signal in our China model, which indicated a bullish directional trend within the market. This led to an increased weighting to China bringing it to an equal weighting within the Fund.

India   India

Having reached all-time highs during May, the MSCI India Index declined 0.3% in June. Shortly after Narendra Modi was swept into power with a landslide victory for his Bharatiya Janata Party (BJP), the central bank of India lowered interest rates for the third time this year. The benchmark repo rate was lowered by 25bps to 5.75% after the Reserve Bank of India’s (RBI) monetary policy committee unanimously voted to lower the rate in an attempt to reverse the country’s economic slowdown. Headline CPI for May came in at 3.05% as expected and remains below RBI's 4% target. The RBI also changed its monetary policy stance to “accommodative” from “neutral”.

The RBI also lowered its expected GDP growth forecast for the current period (April 2019 – March 2020) to 7%, down from the 7.2% previously forecast. GDP growth is now at a 5 year low and unemployment at a 45 year high, which is presenting some challenges for the country’s government.

Indian markets were slightly weaker throughout June following strong performance in May. The underperformance was driven by strong gains in emerging and developing markets. The strongest performing sectors were utilities and information technology, there were also pockets of strength in subsectors such as corporate and retail banks. Healthcare and energy stocks were the lagging sectors over the period.

Fund positioning  

Our capital allocation model seeks to generate positive alpha on balance, through cycles, by actively tilting the country exposure between China and India. The model generates, on average, 1-2 signals per annum, remaining neutral ~65% of the time. The current model signal is neutral, advocating a close-to 50% allocation to both countries.

China   China


As a consequence of our recent initiative to move the China portfolio to quarterly, rather than monthly, rebalancing the fund positioning will remain consistent for this quarterly period.

The allocations for the coming quarter are again tilted towards real estate, industrials and information technology sectors. Underweight positions relative to the MSCI China Index are in the consumer discretionary and communication services sectors.

India   India


Outperformers included utility holdings, industrials and financials. Pleasingly there was little exposure to the healthcare sector that underperformed. However Enami, a personal beauty products distributor, declined further. During the month major owners, part of the Enami group, sold a further stake in the firm in order to reduce debt levels elsewhere in the parent conglomerate. Subsequently the parent has announced plans to sell their cement division which should reduce the need for future share placements of Enami stock. Distressed sellers of quality assets often present good long term investment opportunities.


China   China


The recovery in economic data, led by domestic demand, should soften the impact of lower trade growth. Public investments and auto demand should be supportive. The uncertainty over trade has been particularly pronounced in the technology sector. As indicated last month should we see lower than expected recovery in growth the market will likely look to Beijing for more supportive policies. A rate cut seems unlikely however given a pickup in inflation and non-performing loans.

As US and China relations become less volatile we envisage that markets will trade less on sentiment and trends will be re-established which would enable this portion of the strategy to perform.

India   India


Domestic demand in India remains strong leaving the economy less exposed to potential trade disruptions. Continuing global trade disputes may, in fact, benefit the Indian economy should multi-national companies look to diversify their supply chains. Perhaps we will see higher amounts of foreign direct investment in the near term. Encouraged by a public display of confidence in his leadership, Prime Minister Modi should be well placed to deliver his two commitments of doubling farmer income and providing housing for all by 2022.