The Chindia Fund (I class) declined 3.6% during the month, somewhat better in comparison to the emerging market index decline of 5.3%, but in-line with a 50-50 blend of the Chinese and Indian equity markets. Both the Chinese and Indian portions of the fund performed broadly in-line with their local markets. At the beginning of the month a number of positions were reduced in order to raise cash levels modestly.
In China there are very early indications of economic improvement providing some grounds for optimism for domestic equities which rose 1.0% in the month, suggestive of investors recognising that mortality rates from the coronavirus are low. The official purchasing manager index however slumped from 50 to a six year low of 35.7 and estimates are now for a quarterly contraction of GDP of 2.5%. Electricity usage is around half of prior periods and two thirds of migrant workers have yet to return to their jobs after Chinese New Year. Anecdotal reports suggest that Chinese manufacturing has begun to improve from a low base.
Indian equities declined 7.4% during the month. The country reported annualised fourth quarter growth of 4.7%, the third quarter in a row of falling growth. While lead indicators remain positive, concerns over how much the Coronavirus will affect the economy mean that these indicators are overly optimistic. The Reserve Bank has kept the door open to further interest rate cuts, after 1.35% last year, despite inflation running at over 7.5%. The Indian finance minister has hinted at fiscal measures and has also lowered personal taxes during the month. These actions ought to ensure that growth gets back on track, despite the disruption that the Coronavirus may cause.
At a stock specific level Tencent and Alibaba continued to perform well. Jyothy Laboratories was the worst performer in February, following a quarterly report showing that sales volumes declined a little over 5.5%. This was largely due to one-off change in distribution of fabric care products to institutional sales channels. The company’s market shares have been maintained. Improvements in the Indian economy should benefit the firm directly.