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Chindia Equity Fund: May 2020



• Global equity markets rebounded in April with measures from governments and central banks providing a positive signal to risk
• The Chinese economy showed early indications of a recovery from lockdown measures, while India’s equity market rebounded particularly sharply
• The Chindia Fund (I class USD) returned 12.2%, somewhat ahead of the MSCI EM Index return of 9.2%, largely due to the recovery in Indian equities.

Market update

Chinese and Indian equity markets bounced back in April, after notable sell-offs in March, with India performing particularly strongly. There was no trading activity during the month and no notable disappointments.

With lockdown measures that are among the most stringent in the world, the Indian government is making a concerted effort to stamp out the coronavirus. This decisive response to the global pandemic, along with government support efforts for banks, monetary easing and fiscal stimulus, coupled with the low oil price, led to a large market rally. Indian equities returned 15.6% in April. The fund’s Indian equities returned 17.6%, which was mostly reflective of the smaller cap nature of the holdings.

Signs of the infection curve flattening in China were encouraging, particularly as the economy began reopening. Broad money supply grew more than 11% during the month, indicating that moves from the People’s Bank of China have helped loan growth. Supportive policy measures will likely be required for some time to counter likely reductions in demand from exporters. The Chinese market returned 6.3%, with the fund’s Chinese holdings increasing at 6.8%.

At a stock level, Reliance Industries, Tencent and Aarti Industries were the largest contributors. Pleasingly there were few disappointments. In mid-April, Facebook took a stake in Reliance’s Jio telco and, despite the low oil price, local brokers appeared positively disposed to Reliance shares. Towards month end, and following a set of rather disappointing results, further reports of a planned investment by Saudi Aramco in the company were published.

Tencent continues to be the fund’s largest holding. Analysis of application downloads suggests that global lockdown measures have proved particularly positive for gaming engagement levels. Bloomberg reported third-party data of a 41% rise in gaming sales and a 46% rise in downloads over China’s five-day Labour Day holiday at the beginning of May. Quarterly results are due on 13 May.

Aarti Industries provided a market update outlining its plans to strengthen its global supply chain away from reliance on a single country, namely China. The company made particular mention of the March opening of its fourth R&D centre in Navi Mumbai, India. 

The fund is tilted slightly towards Chinese equities at present. This reflects the team’s view that China is likely to recover economically in advance of other nations.