China
Following the US increasing tariffs on US$200bn of Chinese products in May, China retaliated on 15 June with an additional 25% tariff on a number of US products being sent to China. The list targets US$45bn of US exports, with American farmers likely to be the worst hit. Oil, plastics, chemicals and medical equipment are also impacted. These additional tariffs are scheduled to take effect from 6 July 2019.
Chinese June macro-economic data was strong. Industrial production, retail sales and fixed-asset investment all recovered sharply. The pickup seems to have been led by domestic demand. This provides some offset to the impacts of the on-going trade tensions.
Toward the end of June, we acted upon a buy signal in our China model, which indicated a bullish directional trend within the market. This led to an increased weighting to China bringing it to an equal weighting within the Fund.
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India
Having reached all-time highs during May, the MSCI India Index declined 0.3% in June. Shortly after Narendra Modi was swept into power with a landslide victory for his Bharatiya Janata Party (BJP), the central bank of India lowered interest rates for the third time this year. The benchmark repo rate was lowered by 25bps to 5.75% after the Reserve Bank of India’s (RBI) monetary policy committee unanimously voted to lower the rate in an attempt to reverse the country’s economic slowdown. Headline CPI for May came in at 3.05% as expected and remains below RBI's 4% target. The RBI also changed its monetary policy stance to “accommodative” from “neutral”.
The RBI also lowered its expected GDP growth forecast for the current period (April 2019 – March 2020) to 7%, down from the 7.2% previously forecast. GDP growth is now at a 5 year low and unemployment at a 45 year high, which is presenting some challenges for the country’s government.
Indian markets were slightly weaker throughout June following strong performance in May. The underperformance was driven by strong gains in emerging and developing markets. The strongest performing sectors were utilities and information technology, there were also pockets of strength in subsectors such as corporate and retail banks. Healthcare and energy stocks were the lagging sectors over the period.
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