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Chindia Equity Fund - August 2019



  • The Chindia Equity Fund returned -5.21% during July, with the benchmark (MSCI EM GR USD) returning -1.14%.
  • MSCI China returned -0.50% in July. Whilst the aggregate performance was rather mute, underlying sector performance was not; healthcare (6.47%) and utilities (3.45%) were the best performing sectors, whilst real estate (-5.06%) and materials (-4.88%) were the worst.
  • MSCI India returned -5.21% in July. Most of this negative performance came from financials (-7.08%), energy (-8.61%) and consumer discretionary (-14.35%). In fact the only positive returning sectors were IT (2.76%) and healthcare (0.46%).

Market update

China   China

Chinese equity markets have taken investors on a rollorcoaster ride so far this year, up 20% (MSCI China Index) by the end of April, supported by easing trade concerns, a weaker US dollar and supportive Chinese fiscal policy.  Then May happened;  equity markets across the globe fell after trade tensions heightened, weaker than expected economic data in China and negative sentiment for wider global growth saw the MSCI China Index fall by 13.05%.  Last month saw global equity markets bounce back, with US-China trade war tensions falling and investors shrugging off concerns over the slowing global economy as the prospect of lower interest rates buoyed equity markets. The MSCI China Index rose 8%; also helped by a softer US dollar.

July was a rather boring month by all accounts. Chinese equity markets generally went sidewards, with the MSCI China Index finishing the month slightly lower at -0.50%. With little commentary on trade tensions, markets turned to events in the US with the Federal Reserve (the Fed) lowering US interest rates for the first time in 11 years, and the European Central Bank hinting at more monetary easing. The month also confirmed investors’ concerns over slowing economic growth in China, the economy’s year on year growth in Q2 stood at 6.2% compared to Q1 at 6.4%.

India   India

July was the worst performing month for Indian equity markets so far this year, the MSCI India Index was down -5.21% on the month. The Indian economy continues to contract with GDP continuing to trend lower; slipping from 5th to 7th place in global rankings for 2018 according to World Bank data.

A slower economy has also started to weigh on consumer sentiment and demand; this is best seen in the economy’s auto sector which is experiencing a declining demand trend. The industry leader Maruti Suzuki reported a -33.5% decline in sales in July.

International activities also weighed heavily on markets in July. The Fed announced a 25bps cut in the policy rate (typically a positive for high yielding emerging markets like India), with Chair Jerome Powell’s comments stating that this was not necessarily the beginning of a fresh rate-cut cycle taking equity traders, who were hoping for a more dovish tone, by surprise.

Investor sentiment has also taken a hit after Modi’s government presented a Union Budget which included an increased taxation for the ‘super-rich’, leading to profit taking by many domestic and foreign investors alike. Whilst this particular item has not helped equity markets in the short term, the general tone of the budget was supportive for the long term health of the economy and equity markets.

Fund positioning  

China   China


As a consequence of our recent initiative to move the China strategy to quarterly, rather than monthly rebalancing, the strategy has retained the same sectoral weightings. This means the China portion is overweight the MSCI China Index in the following key sectors: real estate (45% vs 6%), industrials (12% vs 5%) and materials (8% vs 2%). The strategy is underweight finanicals (0% vs 22.2%), communication services (8% vs 24%) and consumer discretionary (14% vs 24%).

India   India


Comparing the India portion of the strategy to the MSCI India Equity, key overweights are to consumer discretionary (14% vs 8%), healthcare (9% vs 4%) and utilities (7% vs 3%). Underweights include energy (3% vs 15%) and information technologies (9% vs 17%).


China   China


The US and China trade war seems to continue as we enter August. With little sign of the end, volatility in the Chinese equity market is fairly inevitable. With decelerating Chinese economic growth it is likely the market will look to Beijing for more supportive policies, these should help buoy the equity markets.

India   India


In this environment of falling economic growth, waning consumer and investor sentiment along with geopolitical headwinds such as escalating trade wars, it is likely that investors look to fiscal and monetary policy to reinvigorate consumer demand and corporate investments. The Reserve Bank of India’s (RBI) benchmark repo rate of 5.75% has plenty of room to manoeuvre.