11 June 2020 View all posts

Chindia Equity Fund: June 2020

 
 

Summary

  • May saw the fund decline 2% compared with the MSCI Emerging Market Index’s return of 0.8%, the Indian index decline of 2.5% and the Chinese index decline of 0.5%
  • The Indian government unveiled a large stimulus package in mid-May, a move which we anticipate will be supportive of both the Indian economy and of Indian equity prices
  • Trading during May was limited.
 
Market update

Over the month of May, the Chindia Equity Fund declined 2% when compared with the 0.8% return recorded by the MSCI Emerging Market Index, the Indian index decline of 2.5% and the Chinese index decline of 0.5%.
Trading was limited, with only a trim to our Tencent shareholding being affected in order to comply with fund regulation. A small increase was made to the Pacific Assets Trust.

Once again, the Chinese portion of the fund fared well against the Chinese index. Online direct sales company JD.com returned 26%, as the COVID-19 lockdowns accelerated the trend towards online shopping. The company reported very positive results and provided higher guidance for the coming periods. 

Hong Kong-based CK Hutchison was the main disappointment over the month, falling 14%. Despite the very low proportion of earnings coming from Hong Kong, unrest returning to the Special Administrative Region has impacted sentiment for the stock. We consider that the company provides exceptional value with little impact on much of the business from COVID-19. We believe there are many catalysts for re-rating the business within our fund, including additional buybacks, listing or spin offs of either the towers or pharmacy businesses, and even a redomicile. As the famous saying goes, “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so”.

While we retain conviction in the investment thesis an approach of not topping up our investment failures should mean the fund is not so subject to entrenched analyst positioning. 

The Indian stock market fell more than 10% over the first three weeks of May. However, the unveiling of a stimulus package, valued at 10% of India’s GDP, resulted in a rebound and the market finished the month only 2% down. The fund’s financial holdings in the Indian portion of the fund underperformed the market. We anticipate a swift reversal of this if the rally in Indian equities is sustained.