Chindia Equity Fund: March 2021

 

 

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Summary

•  The Chindia Fund (I class USD) rose 1.5% during February, ahead of the FTSE Emerging Markets Index return of 1.1%.

• China has seen much of the economic recovery from COVID-19 already. Perennial concerns over the banking system and bad debts persist as the nation attempts to pivot towards a more domestically led rather than exporting economy. 

• Much of India’s economic recovery still lies ahead.

 

Market update

A general steepening on the yield curve saw some rotation from traditional growth towards traditional value stocks during the month. For this rotation to be sustained we believe that investors need to factor in a rise in interest rates. This could come as a result of increased inflation which would force central banks to raise rates. The great inflation debate is on-going, and the truth is that no-one knows for sure what will happen. If there was one economic variable that the Ashburton Investments team would like to know for long term investment, it would be the inflation outlook. There are a few diametrically opposed forces acting on inflation. On one side are the printing presses of the central banks, a general increase in household savings and supply shocks. On the other, are a decrease in the frequency money changes hands, increased consumer caution, spare capacity in both labour markets and production facilities and a rise in technology. On balance, we do not see a dramatic rise of inflation over the next few months and believe that central banks will be relatively slow in their tapering efforts.

While new variants of COVID-19 threaten to come down the track, the light at the end of the pandemic tunnel is looking much closer for citizens of countries with advanced vaccination programs. Israel, the UAE and the UK lead the way on this front. Data from Israel and a recent publication from Public Health England indicates the massive reductions in COVID-19 cases and hospitalisations as a result of vaccine programs.

The outlook for the Indian economy to continue to rebound from the COVID-19 lockdowns is encouraging, with the country looking set to enjoy both modest inflation and economic growth. Indian equities continued to gain with the domestic index gaining 4.6%. It looks likely that privatisation efforts of state banks will go ahead. Our initial analysis of the returns available and level of risk suggests that we are unlikely to participate in these.

China has seen much of the economic recovery from COVID-19 already. Perennial concerns over the banking system and bad debts persist as the nation attempts to pivot towards a more domestically led, rather than an exporting economy. The Chinese Index declined 1.0%.

Within the fund the top performers were Greaves Cotton with a monthly return of +59.0%, China Oriental +15.6% and Power Grid Corp of India +15.4%. At the other end of the spectrum were Crompton Greaves -10.6%, Larsen & Toubro Infotech -9.8% and Eicher Motor -9.6%.

On valuation grounds, positions in Asian paints, Divi’s Labs and Proctor & Gamble India were all trimmed while Godrej Agrovet was sold. The Ashburton Investments team continues to look for quality Indian companies trading on reasonable valuation multiples.