Summary

• The Chindia fund returned 8.4% during the month of July with particularly good returns from the technology sector.
• Buoyed by positive economic data, Chinese equities had a rollercoaster ride during the month, while Indian equities rallied in spite of a poor short term outlook.
• The fund remains tilted towards Chinese exposures.

Market update

The Chindia fund returned 8.4% during the month of July with particularly good returns from the technology sector. Both the Indian and Chinese equity markets performed strongly during the month. Benefiting from strong technology-led tailwinds. Shares of Infosys, Alibaba and Reliance were amongst the best performers, while Gail and DBS Group were the only disappointments.

Chinese equity investors experienced a wild ride in July with the Chinese index rising 15% mid-month before declining to end 9% up. The Chinese economy continues to recover after the COVID-19 shock. Encouraging Purchasing Managers Index data has led economists to revise their projections of China’s GDP up by 2% for the year. State media provided bullish commentary which appears to have encouraged retail investors to leverage up and buy shares. Tensions with the United States (US) continue, and it is likely that Chinese investors will be hoping for a Democrat election win in the US presidential elections, given the publicly fractious relationship with the current US President.

The Indian equity market experienced similar levels of gain over the month, but at a slower and steadier pace. In contrast to China, India’s economic data weakened during the month. The country is battling with the current pandemic and has the third highest number of COVID deaths globally. India is expecting a peak in its infections, according to some models, in a few months. The disconnect between economic data in India and the returns from the equity market are stark. As such, we continue to be more cautious on domestically focused names and continue to tilt the fund towards Chinese exposures.

Consensus remains that central bank policies will continue to be highly stimulative, therefore we expect to continue to see asset prices increase. The US$ weakened by close to 4% over the month, perhaps as risk takers move away from the overvalued safe-haven currency. The enormous monetary and fiscal stimulus has introduced the fear of monetisation and potential inflation. Fortunately, equities have been one of the best asset classes during times of moderate to high inflation.