• While developed market equities continued to rise during March, the FTSE Emerging Market Index declined 1.4% during the month. Despite the high weighting towards Chinese equities the Chindia Equity Fund (I class USD) declined 1.0% during the month.
• Expectations of Chinese credit stimulus fell which led to declining growth expectations. Along with fears of increased inflation this resulted in renewed investor fear of a stagflationary environment. China was criticised by the EU and USA over treatment of the Uyghur people in the Xinjiang autonomous region. Faced with declining growth prospects, and reduced sentiment, the Chinese equity market fell over 6%.
• During the month the Fund was rebalanced in favour of circa 65% Indian equity exposure in line with the mandate and historical precedent.
Expectations of Chinese credit stimulus fell which led to declining growth expectations. Along with fears of increased inflation this resulted in renewed investor fear of a stagflationary environment. China was criticised by the EU and USA over treatment of the Uyghur people in the Xinjiang autonomous region. The US threatened further delisting of Chinese equities. The Chinese equity market declined over 6%.
India is now the only major economy that looks set to enjoy double digit GDP growth in 2021 according to the International Monetary Fund. High frequency data remains broadly encouraging despite a rise in COVID-19 infections. Mobility data suggests more severe localised lockdown measures have been adopted which ought to reduce viral spread. While headline valuations look somewhat elevated for the Indian equity market as a whole, we believe that this is offset by the more positive short to medium term growth prospects of the nation.
Trading was elevated as the Fund shifted positioning from China towards India during the month. Positions in several Chinese names were reduced including total sales of China Unicom and Sinotruck. New additions were made to Tech Mahindra and Mahindra Logistics. Both firms benefit from a well-regarded governance and ownership structure designed to facilitate long term decision making with good shareholder treatment.
Following a sell-off induced by the high-profile collapse of the Archegos hedge fund, another new position was established at month end in Chinese internet search giant Baidu. This occurred soon after an alternative listing of Baidu shares on the Hong Kong exchange resulting in a demand mismatch for the shares, we believe is likely to be short term in nature.
The position tilt towards India will remain for as long as our data indicates a more positive outlook for Indian equities. A risk near to this positioning is the resurgence in COVID-19 viral case numbers in the nation which could cool both sentiment and the bubbling economic resurgence.