Chindia Equity Fund: November 2020

 

 

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Summary

  • The Chindia Fund continued to do well during the month, gaining 4%.
  • Largely driven by China, the FTSE Emerging Index gained 2.3% in contrast to the FTSE All World Index decline of 2.5%.
  • Expected US dollar weakness following the US elections should support the performance of Chinese and Indian equities.

Market update

The performance of emerging market equity diverged from the rest of the world during October, with the FTSE Emerging Index gaining 2.3% in contrast to the FTSE All World Index decline of 2.5%. 

The Chindia Fund continued to do well during the month, gaining 4%. The tilt towards China within the strategy, together with a good stock selection in India, helped drive outperformance.

No trading activity was undertaken.

Tencent, a 7% position, returned more than 15% during the month. The company’s weekly sales grew 20% towards the end of the month driven by the release of new hit ‘Moonlight Blade’ and increased interest in ‘Peacekeeper Elite’ due to the launch of an esports event. Investor interest in Tencent was also likely sparked given more information being made public on payment platforms in China in the run up to the Ant Financials initial public offering, which was ultimately withdrawn. On several measures Tencent’s Tenpay (including WeChat Pay) is only a little smaller than Ant Financial and has close to a 40% market share of the mobile payment market.

Asian Paints also performed very strongly, reporting earnings 28% ahead of estimates. The firm, which has a domestic market share of more than 50%, has benefited from an increase in the amount of home decoration. The stock now trades on elevated multiples, so the position size will be tempered by trimming the position should the share price continue to climb.

Conch Cement was the main disappointment during the month, declining 9%. Towards the end of the month management provided a more positive outlook than may have been expected given quarterly results. The firm envisages increasing demand in the east and south of China. This ought to lead to consensus upgrades and a more positive share price move in the near term.

Under a number of scenarios planned for following the US election, the global team anticipates a weaker US dollar. For US dollar-based investors this ought to be generally favourable for equities in China and India.