September, 2023
• Tencent, a world leader in the internet-related services space, provides services across instant messaging, social media, email, web-portals, e-commerce, advertising, online payment as well as multiplayer games.
• With offerings including QQ Instant Messenger and WeChat, Tencent is providing similar services to the likes of Facebook, Twitter and WhatsApp. By the end of Q2 2018, QQ had 803 million monthly active user accounts, whilst WeChat, since its launch in 2011, accommodates for over 1 Billion monthly active users.
• In November 2017, Tencent's market value reached US$528 billion, surpassing Facebook’s market value at the time, which resulted in it being recognised as one of the world's top 5 most valuable public companies.
Alibaba, an e-commerce giant, provides services ranging from web portals connecting businesses and consumers, electronic payment services and internet infrastructure.
• Its flagship site Alibaba.com is the world’s largest online business-to-business trading platform for small businesses, handling sales between importers and exporters from over 240 countries. whilst its consumer-to-consumer portal—Taobao functions similar to eBay featuring nearly a billion products. Currently, it is amongst one of the 20 most visited websites globally on a consistent basis.
• Global brands such as Nike, Uniqlo and Burberry, use Alibaba’s Tmall platform to market to an estimated 300 million shoppers. The companies online payment platform—Alipay is larger than PayPal and accounts for roughly half of all online payment transactions within China.
• Founded in 1999, CNOOC engages in the exploration, production and selling of crude oil, natural gas as well as other petroleum products. The company’s exploration sites, from which it extracts its crude oil and natural gas, are on offshore rigs in Bohai, Western South China Sea, Eastern South China Sea, and the East China Sea.
• On the 23rd of August 2018, the company announced its profits had increased by 57% year on year, whist also announcing an interim dividend of HK $0.30 per share, on the back of inflationary pressures from the international market. CNOOC, however, has been able to maintain its all-in production expenses at $31.83 per barrel. This has allowed it to remain competitive within the global market.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/PCF-top-10-information-sheet-September-2023-1.pdfAugust, 2023
In August, the Fund was down 5.4% (in AUD), while the MSCI China Index recorded losses of 5.3% (in AUD).1 Year-to-date, the Fund and the Index were down 3.5% and 0.2%,1 respectively.
During the month, currency hedging was among the main detractors to the Fund’s performance, also leading to the portfolio’s slight relative underperformance to the index. Meanwhile, our holdings of industrial and insurance companies also dragged, partly due to the subsided expectations on “SOE reforms”. Other detractors included consumer-related names, which were impacted by the general weakness in the market. That said, our holdings are of high quality, and their business fundamentals are expected to remain resilient amid potential market volatility, especially given the slew of supportive measures the government released at the end of the month.
On the other hand, our holding of a leading e-commerce player was the top contributor to the Fund’s performance on the back of its stellar second-quarter results. Meanwhile, our stock picks in the energy and materials sectors also supported the Fund’s performance. These include one of the largest oil companies in China, which benefits from the higher oil prices and is supported further by its efficient operating cost control measures, and a fertilizer producer, which benefits from the steady demand outlook of its products. Other contributors include a telecom operator and a traditional Chinese medicine (TCM) provider.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/PCF-August-2023.pdfJuly, 2023
In July, the Fund was up 8.6% (in AUD), while the MSCI China Index recorded gains of 9.4% (in AUD). Year-to-date, the Fund and the index were up 2.0% and 5.4%, respectively. The Fund’s gains were broad-based across sectors. Our stock picks in leading internet players within the consumer discretionary and communication services sectors were among the top contributors to the Fund’s performance, as they were boosted by the central government’s supportive policy stance toward private enterprises and platform companies. Our exposure to the financial sector also supported the Fund’s performance, as investors added to the more traditional areas of the market to position for the potential stimulus. In particular, our holding of an insurance company continued to benefit from its new business value growth. Currency hedging was also a contributor. On the other hand, our exposure to the healthcare sector slightly dragged the Fund’s performance, particularly our holdings of a leading traditional Chinese medicine (TCM) provider and a medical equipment manufacturer, due to profit-taking activities from investors following the sector’s positive performance in recent months.
We remain constructive about our holdings as they should ride on the normalizing demand for consumer and medical products and services. In addition, we did not own some of the benchmark companies that also performed strongly alongside the market during the period, including internet- and electric vehicle-related names, leading to a drag on the Fund’s relative performance. That said, we remain selective in these areas and have more conviction in our current holdings, as we view them to have better long-term earnings visibility and risk-reward profiles.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/PCF-July-2023.pdfJune, 2023
In June, the Fund was up 1.3% (in AUD), while the MSCI China Index recorded gains of 1.1% (in AUD). Year-to-date, the Fund and the index were down -6.1% and -3.7%, respectively.
The top contributors to the Fund’s performance include select internet names in the consumer discretionary and communication services sectors, as they are expected to maintain revenue growth ahead despite the short-term bumpiness of the economy. Meanwhile, a high-quality property developer yielded positively despite the ailing property market, as it delivered stronger sales growth relative to its peers and has continued to progress with the construction and delivery of its projects. A leading regional insurance company also supported the Fund, given it steady business growth outlook, especially with strong business demand associated with the resumption of mainland Chinese visitors to Hong Kong.
On the other hand, our exposure to SOEs, including those in the industrials and telecommunications sector, was a key detractor to the Fund’s performance, as expectations of SOE reforms moderated during the month. Our exposure to the healthcare sector, particularly our holdings of a medical equipment manufacturer and a traditional Chinese medicine (TCM) provider, also dragged as investors took profit following the sector’s positive performance in recent months.
Although the Greater China market opened higher at the beginning of June on expectations of more policy stimulus, the optimism gradually faded as macroeconomic indicators continued to disappoint, giving up some of the earlier gains in the month.
The latest consumer price (CPI) data continued to indicate a threat of deflation, remaining at an anemic level of 0.2% YoY in May, while the decline of the producer price index (PPI) also enlarged from the previous month.1 Exports also declined in May, reversing a surprisingly positive growth in the previous two months. Within the property sector, new home sales also weakened in June. Adding to the market’s worries include the youth unemployment rate (aged 16-24) rising to a record high and the weakening renminbi relative to the US dollar.
On a positive note, the government gave signals that economic growth remains a key priority, with various easing measures to support the country’s recovery. In June, the oneand five-year loan prime rates (LPRs), which are the reference rates for corporate loans and mortgages, respectively, were cut by 10bps. That said, expectations for more sizable stimulus packages, particularly targeting the property market, have not been met.
On the geopolitical front, communications between senior officials of China and the US, including the US State Secretary Blinken’s visit to Beijing, indicate intentions of smoothening tensions. Meanwhile, Premier Li Qiang, who gave a keynote speech at the World Economic Forum, rejected the West’s increasing rhetoric of “de-risking” from China and instead called for greater global cooperation. However, although these may help prevent tensions from further escalating, we have yet to see concrete steps to ease tensions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/202791962.pdfMarch, 2023
In March, the Fund was up 2.9% (in AUD), while the MSCI China Index was up 5.2% (in AUD).3 For the first quarter, the Fund was up 3.8% (in AUD), while the index performed 6.0% (in AUD).3
During the month, the key detractors were financial names, dragged by the weakened sentiment caused by the SVB and Credit Suisse incidents. However, we believe the impact of the recent events on the banking sector in China (as well as Asia as a whole) is rather limited. Other detractors included a major e-commerce player, which delivered a lower-than-expected set of quarterly results, and a leading solar component maker. Currency hedging was also a detractor to the Fund’s performance. On the other hand, some of our portfolio holdings continued to yield positively.
These include some internet companies, which continued to benefit from the economic recovery and the regulatory tailwinds. Our positions in some SOE companies were also boosted by expectations of further SOE reforms as well as the rapid development of industrial digitalization, especially on cloud infrastructure services.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/199324958.pdfFebruary, 2023
In February, the Fund and the MSCI China Index performed -7.7% (in AUD) and -6.3% (in AUD)1 , respectively. Currency hedging was a detractor to the Fund’s performance.
The key draggers in this month are mainly leading internet companies and financial names – many of which were outperformers in the previous three months and had a strong run. We believe their corrections were primarily sentiment-driven, as there are no signs of any significant deterioration to their fundamental outlooks.
On the other hand, some of our portfolio holdings were resilient despite the broader market correction and supported our Fund. In particular, these include our exposure to Chinese telecom operators, which were boosted by expectations of further SOE reforms to bolster their shareholders’ returns and faster adoption of cloud infrastructure services. Currency hedging was also a detractor to the Fund’s performance.
We believe the market correction, which occurred after a strong and lengthy market rebound, is only temporary, and the market still hasn’t fully priced in the solid macroeconomic recovery and the corporate earnings rebound of China. The market could remain volatile in the near term as investors focus on the messages around the “Two Sessions” in China. On 5 March 2023, China disclosed the GDP growth target of “around 5%” for 2023, which is at the conservative end of the consensus forecast range of 5-6%. While this may upset some investors, we continue to hold an optimistic view of China’s stock market outlook.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/198346575.pdfDecember, 2022
In December, the Fund and the MSCI China Index were up 3.8% (in AUD) and 3.9% (in AUD)1 , respectively.
Returns were broad-based and widespread among different individual names, particularly led by companies in the consumption, financial, and internet sectors, as they were supported by expectations of reopening between Hong Kong and mainland China. The top contributors include a leading internet player, which benefited from the release of online video gaming licenses, a regional insurance company, and a leading retail bank in China.
However, their positive contributions were partly offset by the share price corrections in some other names. For example, a leading semiconductor foundry was hit by concerns of a harsher global consumer electronic downturn.
Despite some near-term pressures, we continue to believe the company offers compelling long-term value, given its unique strategic positioning and unrivalled leading position in advanced node manufacturing, which could help to preserve its business competitiveness and profitability over the long term.
We are confident that 2023 will be a year of recovery for China, and there is still large potential upside on the back of the low valuations and prospective corporate earnings upgrades. That said, we expect the road ahead to remain bumpy, especially on swift movements in some macro data points and economic events. In particular, the accelerated reopening and exit of anti-Covid controls have adversely affected near-term mobility and business activities in China and may lead to softer near-term macro readings. However, these are also expected to be followed by a robust rebound later. Overall, we remain nimble and diligent in our portfolio management, with a view to safeguarding the portfolio’s robustness. We continue to invest in high-quality companies – particularly in the consumption, financial, and technology sectors, that will ride through the volatility and thrive over time.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/195846682.pdfNovember, 2022
In November, the fund and the MSCI China Index were up 22.3% (in AUD) and 23.9% (in AUD),4 respectively.
The significant market rebound during the month was rather broad-based. All major sectors have registered positive returns, mainly led by the real estate and internet companies, as well as some consumption names that are perceived to benefit from China’s phasing out of its anti-Covid policies (i.e., reopening). These primarily reflected the renewed investor enthusiasm amid the strong funding support for property developers and the fine-tuning of anti-Covid policies in China.
For the fund’s performance, the biggest contributors include leading e-commerce players, consumer names, and financial companies. Despite macro headwinds, these companies have all reported solid results for the third quarter of this year, which showcase that our portfolio’s high-quality holdings are well-positioned toward the market turnaround.
Although market sentiment has remained buoyant in recent weeks, we anticipate share prices to remain choppy as different macro data and business activities reports are released. For one thing, property sales in China will likely remain weak in the near term, and without a meaningful pickup, it is hard to see how long the strong rally in distressed property companies could sustain. The same thought applies to some “reopening plays”, as we still foresee some back-and-forth in the loosening of anti-Covid measures, which were held for a long period, and it would take time for people to accommodate the new normal.
Looking ahead, one key event to watch is the central economic working conference that will be held in the coming few weeks, which could outline more top policy directions in China. Regarding our portfolio holdings, we continue to invest in high-quality companies that will ride through the volatility and thrive over time. We remain optimistic about China’s long-term market outlook and have strong faith that our long-held practices in diligent, thorough, deep-dive, and bottom-up research will bear fruits over the long term.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/193724238.pdfSeptember, 2022
In September, the Fund and the MSCI China Index were down 7.9% (in AUD) and 8.9% (in AUD),4 respectively.
Poor market conditions during the month affected our fund’s performance. Our exposure to consumer discretionary names, which include e-commerce companies, were among the key detractors to the fund’s performance amid the weak macro backdrop and intermittent Covid outbreaks. Our exposure to financial companies also dragged, as investor sentiment was partly impacted by the government’s circular encouraging fee reductions in the finance sector to support business activities. Our holding of a leading semiconductor foundry was also dragged by ongoing concerns over weakened demand and news about potential order cuts. While we reckon their share prices could come under pressure amidst the unusual and unfavorable market conditions, we are confident that these quality companies remain well-positioned to ride through different business cycles and grow over time.
On the flip side, some of the fund’s portfolio holdings have delivered resilient share price performance. These include two major telecom operators, offering some sound defense to the portfolio as they saw continued business growth. Our holding of a state-owned developer also gained on the back of improved sentiment within the property sector following the announcement of
favorable policies.
We expect market volatility to remain elevated on the back of the continuous movements in macro data points and economic events. In China, the market could remain relatively muted as investors await the important party congress meetings in the middle of October. Despite the heightened uncertainties in the near term, we remain optimistic about China’s long-term market outlook and believe it offers good long-term risk-reward opportunities at current valuation levels. We also believe our fund, which is comprised of high-quality and fundamentally solid companies that generate sustained, long-term value for investors, is well positioned.
July, 2022
In July, The Fund was down 10.4% (in AUD), in line with the MSCI China’s drop of 10.8% (in AUD)3 .
The Fund’s performance in July reflected a broad-based market correction. Amongst our holdings, consumer companies, internet names, and financial holdings were the largest draggers. The real estate sector was undoubtedly another detractor, as they have been broadly sold off amid news reports about the mortgage boycott. Although the news initially focused on the uncompleted projects of some distressed developers, it raised concerns about spillover effects. Consumer, internet, and financial holdings, therefore, took a hit as economic recovery may be protracted.
Our select quality holdings, nevertheless, stayed resilient despite the market volatility. They are led by a leading semiconductor foundry, which posted a solid set of quarterly results. Despite mounting concerns about the slowing demand for consumer electronic products and, in turn, semiconductors, this company continued to guide positively for its growth outlook in 2023. This, in our view, offers a good example that fundamentally sound, leading companies could ride through different business cycles and prosper over time.
Overall, despite the market setback in July, we remain optimistic about China’s future outlook. Although we note the recent escalated geopolitical tensions have led to further market weakness, we are confident that the China market, which has already undergone steep downward earning forecast adjustment and stiff share price correction and offers good risk-reward at the current valuation levels. That said, we view that the mixed signals and trends from economic data and policy support may indicate a bumpy economic growth ahead. Our Fund will continue to invest in the fundamentally solid companies which offer sustainable growth in the long run, as we believe the diverging performance among companies and sectors presents good bottom-up stock picking opportunities.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/190109773.pdfJune, 2022
Greeted by favorable news of easing lockdowns, better-than-feared economic data, and the announcement of additional stimuli, the MSCI China Index was up 11.2% (in AUD) in June4 . During the period, the Fund returned 5.6% (in AUD).
Consumer-related names, including e-commerce, were the key contributors during the month, reflecting the market’s enthusiasm towards China on the back of the continuous fiscal stimulus, policy normalization, and partial reopening that bolstered economic activities. With the expectation of additional stimuli and easing pandemic measures, we have increased our select consumer holdings to position for potential economic recovery. Our exposure to financial services also yielded positively, particularly from a leading wealth management platform with a strong retail franchise. Our real estate holdings also contributed as sentiment improved on signs of property sales recovery.
On the other hand, our positions in technology hardware component makers dragged the portfolio’s performance. They were impacted by ongoing fears over a recession in the US, which could prompt further weakness in the demand for consumer electronics. It is worth noting that we have trimmed our exposure to electronic-related names in the month. Our active holding of a leading semiconductor foundry was also dragged by negative news of order cuts. That said, we view that its strong technology leadership should not be disrupted by short-term volatility. Our underweight in the e-commerce space has also hindered our performance relative to the benchmark.
Looking ahead, we are positive about China’s accommodative policy stance. The continuous reopening, easing supply chain disruptions, and healthy economic fundamentals should support domestic consumption. That said, we view that a rapid economic recovery is less likely, and market volatility will remain amid ongoing concerns of a potential recession shock coming from the US. In addition, we are also keeping an eye on other parts of Asia as inflation has started to hurt some economies and how this may potentially affect China. We continue to favor high-quality, leading companies, especially those that sit favorably toward structural growth trends, such as consumption upgrade, the growth of wealth management businesses, and the adoption of new energy and technologies.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/189230069.pdfApril, 2022
AUD), respectively. As the US dollar strengthened, currency hedging contributed to about 1.3% of the Fund’s performance.
Our internet holdings yielded positively in the month, as sentiment recovered following China’s calling to facilitate the healthy development of the platform economy. We see that our top holding of an e-commerce platform is seeing improving profitability in its core businesses. Meanwhile, despite overall weakening demand, consumer staples were also contributors, led by a dairy company, as the company is well-positioned to take advantage of the premiumization trend in China as it continues to improve on its product mix. Our exposure to energy also contributed on the back of the elevated commodity and energy prices. On the flip side, our financial holdings detracted amid the disrupted macroeconomic conditions domestically. However, we continue to be positive about their long-term growth outlook, particularly those that provide wealth management services. They should ride on the structural trend of retail investors demanding more professionallymanaged financial products. Meanwhile, our exposure to real estate slightly detracted as property sales remained subdued amid lockdowns. However, we view that the fine-tuning of policies should eventually uplift market sentiment, especially for our holdings, which are state-owned developers with strong balance sheets and property management names.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/187239057.pdfMarch, 2022
In March, the Fund and the MSCI China Index were down 13.3% (in AUD) and 11.1% (in AUD), respectively.
Amid a risk-off sentiment, all sectors recorded losses in March. Our exposure to hardware technology was among the hardest hit amid end demand weakness, including smartphone and PC shipments, leading to fears of inventory correction in the consumer electronics and semiconductor space. While we remain cautious of their near-term outlook, our holdings focus on high-quality leaders in the industry that should benefit from the continued digitalization trend. Our top holding of a leading online entertainment provider also detracted as growth headwinds continued to cloud the near-term internet sector outlook. Other detractors included our holdings in consumer-related names amid the weaker demand outlook caused by the pandemic. That said, we remain constructive on our consumption upgrade holdings as they continue to deliver decent long-term earnings growth.
On the flipside, our holdings of energy and fertilizer companies yielded positively as they continue to benefit from rising commodities and food prices. Our holdings in the more defensive sectors, such as in selective financials, also rose, as investors continue to rotate towards value and high-yielding stocks from the growthier parts of the market amid the faster-than-expected tightening of the Fed. Overall, we view that volatility will remain in the near term as the abovementioned risks have created many uncertainties, with investor sentiment outweighing the change in fundamentals. However, the current investment landscape has created bottom-up opportunities, with diverging performances in sectors and companies. At the same time, the continued easing policy should pave the way for a more favorable backdrop. While we remain cautious in assessing the impacts of COVID resurgence, medium-term, we view that the government’s pro-growth stance should eventually uplift market sentiment, although it will take time for monetary and fiscal actions to be reflected in the economy. We continue to prefer high-quality companies with earnings visibility and those that will benefit from policy tailwinds, including consumer names, hardware technology, and financial companies that provide wealth management services.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/186302137.pdfFebruary, 2022
In February, the Fund and the MSCI China Index were both down 8.4% (in AUD) and 6.7% (in AUD), respectively. As the AUD appreciated against the USD, currency hedging attributed a loss of 1.7% to the Fund’s performance. Despite liquidity support, the Fed’s hawkish stance and geopolitical tensions took the center stage during the month, triggering a risk-off sentiment. Our holdings of technology hardware names dragged, as investors continued to be concerned about the slowing demand globally. That said, we continue to hold a positive outlook on our holdings, as they continue to offer high earnings visibility and growth under the global structural trend of digitalization and electrification.
Our selective exposure in the internet sector also detracted as investors anticipated a moderated first quarter macro environment. Investors, in particular, over-reacted on a policy statement that food delivery operators should offer temporary preferential rates to restaurants that are located in the “medium-to-high COVID risk areas”. As investors continue to be sensitive to negative newsflow, we remain very selective in the sector and ensure our holdings continue to have intact fundamentals. We are also cautious of potential policy changes as the government rolls out its common prosperity agenda.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/185632072.pdfJanuary, 2022
In January, the Fund was slightly down 0.3% (in AUD), while the MSCI China Index was a bit flat at 0.2% (in AUD)1 . Our exposure to onshore equities dragged the Fund’s performance. During the month, sentiment was dented by the soft macro numbers as well as sharp volatility of the overseas market due to the US tapering pace. In particular, there was a selloff in technology stocks as investors got concerned about oversupply and slowing demand. That said, the global structural trend of digitalization and electrification is still intact and we continue to hold a positive outlook on our industry leader holdings, particularly companies that continue to see high earnings visibility. Other A-share exposures that pulled back amid the moderating growth outlook include industrials and an online financial platform. Despite the short-term setback, we view that growth continues to be sustainable, supported by accommodative policies, and the pullback in the market has also made their valuations more attractive.
Meanwhile, our holdings in telecommunications and real estate yielded positively, as investors rotated from growth names to the more value and high yield stocks amid the faster-than-expected tightening of the US Fed. For example, our holding of a Chinese telecommunications company continues to benefit from improving dynamics in the sector, including higher pricing for 5G, and is riding on the industrial digitalization trend in China. Our bottom-up picks within real estate benefitted from the more eased policy stance by the government, such as the reduction of the 5-year LPR. Our view remains the same that high-quality names will benefit from industry consolidation as sales and liquidity conditions are expected to be polarized between the healthy and high-geared developers. Against the current macro backdrop, we continue to be optimistically cautious of the Greater China market. We continue to monitor downside risks, including the pace of tapering by the Fed and ongoing domestic regulatory headwinds, as we view that these uncertainties may drive volatility in the short- to medium-term. That said, valuations have retreated to undemanding levels, while the government’s more pro-growth policy stance should promote stable growth in China.
We believe that the current investing landscape should offer bottom-up investing opportunities as we expect more diverged performances among companies and sectors. We continue to favor quality names are beneficiaries of growth policies, including tech leaders, consumer-related names, and financial companies that provide wealth management services.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/184124948.pdfDecember, 2021
In December, the Fund and the MSCI China Index were down 2.8% (in AUD) and 5.6% (in AUD), respectively. A basket of our holdings in technology hardware companies yielded positively during the month as the demand for consumer electronics remained solid. Riding on the 5G wave globally, we continue to see ample investment opportunities in the technology hardware sector as 5G applications mature. A company engaged in animal feed manufacturing also rallied on improving competitiveness by providing comprehensive services and establishing a complete ecosystem. This leading business model should increase customer stickiness and the company’s earnings stability.
On the other hand, our selective exposure in the internet space dragged the Fund’s performance in December. As increased scrutiny over the internet sector continues to moderate the sector’s growth outlook, we maintain our cautious view of the sector. Focusing on fundamentals, we remain underweight and selective in this space. Among these, companies with core competitiveness in providing online services should continue to see growth opportunities. Our healthcare exposures also detracted as the sector was hit on speculations that the US will be adding Chinese biotech companies to its trade blacklist, with investors overreacting to unverified news. In addition, currency hedging was also a detractor to Fund performance, as the AUD appreciated against the USD.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/182653577.pdfNovember, 2021
In November, the Fund and the MSCI China Index were both down 0.4% (in AUD). Our selective exposure in e-commerce dragged the Fund’s performance in November. As increased scrutiny over the internet sector continues to moderate the sector’s growth outlook, we maintain our cautious view of the sector and remain underweight and selective in this space. That said, longerterm, the internet space continues to play a key role in China’s economy. Meanwhile, our exposure in the real estate sector also detracted. Despite easing sentiment over policy risks, the sector continues to see downward pressure, with most developers recording softening contracted sales performances. That said, we remain constructive on our property management holdings, which offers growth visibility.
On the flipside, our holdings in hardware technology yielded positively during the month as they continue to ride on the digitalization trend domestically and globally. One of them is a forerunner in electronic component parts and a major AR/VR headset assembler. It benefitted from continued demand for wearables, including wireless earphones, as well as the revenue growth expected from new AR/VR models that will be released next year, driven by various companies’ adoption of the metaverse. Our selective exposure to various consumer names also contributed. They include Chinese sportswear and white liquor companies, which benefited from an improving consumer outlook in the country, as well as a Taiwan-based bicycle manufacturer, which continues to ride on the rising e-bike trend globally
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181885714.pdfOctober, 2021
In September, the Fund had muted returns of -0.7% (in AUD), but continued to outperform the MSCI China Index’s -3.9% (in AUD) performance. Our positions in defensive sectors, including consumer staples and healthcare, helped the Fund outperform the Index. For example, our holding of a Chinese white liquor producer contributed as it expects to see quality growth opportunities from its plans to focus on direct sales. Meanwhile, our holding of a leading biotechnology company is set to benefit from the long-term structural growth of the healthcare sector on the back of its continued development of innovative drugs. Our underweight in Chinese internet names also helped with the Fund’s outperformance. The Fund also does not hold Evergrande.
On the flipside, our exposure in consumer discretionary and in industrials detracted amid concerns on weaker consumer outlook on both fronts. That said, our holdings in these sectors, including sportswear manufacturers and a power tools and equipment manufacturer, remain resilient on the back of the gradual economic recovery both in China and globally. Consumer names also continue to be supported by the country’s ongoing consumption upgrade theme.
With the policy overhang in the past few months, we expect the market sentiment will take time to recover. However, despite these challenges, we continue to find opportunities in the Greater China equities market. On the back of the government’s policy agenda of promoting quality and sustainable growth and equality, we view that it is crucial to identify quality companies that are either immune to policy headwinds or benefit from reform, as well as benefit from the country’s long-term structural growth trends. These include technology leaders, consumer-related names, healthcare, and industrial companies.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/180243909-1.pdfSeptember, 2021
In September, the Fund had muted returns of -0.7% (in AUD), but continued to outperform the MSCI China Index’s -3.9% (in AUD) performance.
Our positions in defensive sectors, including consumer staples and healthcare, helped the Fund outperform the Index. For example, our holding of a Chinese white liquor producer contributed as it expects to see quality growth opportunities from its plans to focus on direct sales. Meanwhile, our holding of a leading biotechnology company is set to benefit from the long-term structural growth of the healthcare sector on the back of its continued development of innovative drugs. Our underweight in Chinese internet names also helped with the Fund’s outperformance. The Fund also does not hold Evergrande.
On the flipside, our exposure in consumer discretionary and in industrials detracted amid concerns on weaker consumer outlook on both fronts. That said, our holdings in these sectors, including sportswear manufacturers and a power tools and equipment manufacturer, remain resilient on the back of the gradual economic recovery both in China and globally. Consumer names also continue to be supported by the country’s ongoing consumption upgrade theme
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/180243909.pdfAugust, 2021
In August, the Fund and the MSCI China Index were up 3.2% (in AUD) 2 and 0.5% (in AUD), respectively.
Our core holdings in the industrials and consumer sectors were among the top performance contributors of the month. Within the industrials space, our core holding of a Chinese shipping company announced solid earnings results, supported by the addition of newly acquired terminals and new shipping routes in the first half of 2021. In addition, a power tools and equipment manufacturer delivered robust results and strong margin expansion, leading to a re-rating of the stock. Meanwhile, consumer names, including sportswear and e-commerce, remain resilient amid China’s gradual economic recovery and consumption upgrade
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/179170075.pdfJuly, 2021
In July, the Fund and the MSCI China Index were down 15.2% (in AUD) and 12.3% (in AUD) 1 respectively. Last month, the USD appreciated 2.1% against the AUD. The currency hedging, as a result, was a detractor to fund performance.
Our holdings in internet-related names were among the top detractors of the fund amid policy headwinds. As China continues to step up its scrutiny in the sector, we expect the sector to remain jittery in the coming months. In light of the policy overhang, we have reassessed the valuations of our holdings due to the potential impacts and have trimmed our position in the internet space, reflecting our cautious stance. Our core holdings in consumer and industrial names were also among the key detractors of the fund amid the weakened sentiment. That said, we continue to have a positive outlook on these sectors. On the consumer front, we view that fundamentals remain intact and companies continue to benefit from China’s ongoing premiumization story. Meanwhile, industrial names, particularly in shipping, continue to benefit from the global shortage of shipping containers.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/176335679.pdfJune, 2021
In June, the Fund was up 2.8% (in AUD), while the MSCI China Index increased 2.7% (in AUD) 2 . Our holdings in consumer and industrial names were among the top performance contributors of the month. Consumer names such as sportswear continue to ride on China’s economic recovery and consumption upgrade. Meanwhile, Chinese shipping companies continue to benefit from the global shortage of shipping containers. On the flipside, our exposure in financials slightly detracted on the back of moderating growth data. But we remain optimistic about our holdings in the sector. We expect them to benefit from the growing demand for wealth management services from retail investors in the country.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/175013849.pdfMay, 2021
In May, the Fund was up 2.5% (in AUD), while the MSCI China Index was flat at 0.06%4 (in AUD).
In the fund, our exposure in financials was the top performance contributor of the month. Banks reported improving nonperforming loan ratios and net profits during the first quarter, while firms providing wealth management services continue to see growing demand from retail investors. Our exposure in consumer names, such as sportswear, jewelry, and Chinese white liquor, also contributed on the back of China’s economic recovery and consumption upgrade.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/173160891.pdfApril, 2021
In April, the Fund is up 3.7% (in AUD), while the MSCI China Index was flat at -0.03%1 (in AUD).
In the fund, industrial companies, particularly shipping companies, were among the top performance contributors last month, riding on China’s continued recovery and exports demand post-pandemic. Our financials holdings which are exposed to the China wealth management market, also benefited from the on-going recovery. Another key contributor is a domestic sportswear brand as preference for national brands grew.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/171484488.pdfMarch, 2021
In March, the Fund retreated 3.0% (in AUD) while the MSCI China Index lost 4.7% 1 (in AUD). Year to date, the market performance was mixed. On a positive note, the industrial sector that we overweight rallied on the strong global demand for Chinese exports. Our holdings in the shipping companies benefitted from the strong YoY export growth of 49% in the first quarter. Also, our property holdings were supported by results beats and bright growth outlook. The technology hardware makers rose on the resilient demand for electronic components.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/170717444.pdfFebruary, 2021
The Fund (in AUD) fell 0.6% and the MSCI China Index (in AUD) fell 1.9%2 . The weak market sentiment caused detractions in our exposure to healthcare and information technology. They gave up some gains from the recent rally as the discount rate for future earnings climbed. That said, the fundamentals of these companies remain intact and we continue to hold them.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/169149793.pdfJanuary, 2021
China equities stayed on a resilient growth trajectory and started the year on a strong note. In January, the MSCI China Index growing 8.0%2
(in AUD). The Fund increased 3.1% (in AUD). In the Fund, the Chinese Internet giants were among the top contributors. For example, the leading online entertainment provider and the biggest e-commerce service platform rode on the intact digitalization trends and performed. The robust recovery progress in China helped the performance of the Fund’s consumer staples and financials holdings. Our Taiwanese hardware manufacturer holdings enjoyed robust global demand for advanced chips and price hikes, contributing to this month’s fund returns.
Conversely, detraction mainly came from the e-commerce space. Our core e-commerce holdings retreated after months of resilient performance, versus the rebound of merchandized goods e-commerce platform, which we held underweight positions. Also, our lack of electric vehicles original equipment manufacturer (OEM) caused detraction. On top of the relative positions, there was profit taking in some recent winners, such as shipping companies and the consumer discretionary names, including domestic auto and sports brands.
The continued recovery in earnings outlook shall justify the valuation for selective quality companies after the rally. We remain cautiously optimistic and adhere to bottom-up stock picking to identify companies that are on a structural growth trend and offer longer-term growth opportunities.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/166403524.pdfDecember, 2020
The Fund grew 6.6% (in AUD) due to strong performance and currency hedging gain. In comparison, the MSCI China Index lost 1.9%2 (in AUD), due to the AUD appreciation against the U.S. dollar in December.
Our consumer-related holdings continued to thrive along China’s path to normalization and contributed positively in December. Our core exposure to e-commerce platforms is expected to maintain its robust growth outlook heading into 2021. Meanwhile, our core position in the baijiu names continue to enjoy robust demand and price hikes. This month, we also added a leading duty-free operator in China to the portfolio, which contributed significantly during the month. The company benefits from favorable government policies and the trend of consumption reshoring to the mainland. Another key contributor to performance, a top holding in China’s leading biotech company rallied as the price cut overhang was removed and its potential to tap into the overseas market surfaced.
In 2021, Chinese companies are expected to lead growth in Asia. With its recovery ahead of the curve, China’s economic growth will be more robust and balanced between the old and the new economy. After the strong rally in 2020, we continue to prefer a bottom-up stock picking approach and be selective.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/163707113.pdfNovember, 2020
The Fund grew 2.3% (in AUD) while the MSCI China Index lost 2.1%2 (in AUD).
This month, our core holdings in consumer-related names continue to contribute to our fund performance. China’s latest Five Year Plan, which takes national consumption as a development strategy, provided a positive spin to our exposure to home appliances and sports apparel companies, for example.
China’s ahead-of-the-curve recovery is supported by a strong pickup in export and trade. In particular, a leading shipping company in the portfolio rallied on solid data. Our financial holdings are also supported by broader economic recovery expectations and the steepening yield curve in China.
Conversely, China’s anti-trust draft rules caused a slight detraction of some internet giants. That said, anti-trust rules in the internet space are not uncommon worldwide and are unlikely to derail the long term structural growth outlook.
We remain constructive on China equities as liquidity remains abundant and the economic recovery path continues to be solid. The dual-circulation strategy’s focus on self-sufficiency is expected to support domestic-driven businesses and offer pronounced investment opportunities for selective best-of-breed companies in the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/162439514.pdfOctober, 2020
The Fund grew 6.2% (in AUD) while the MSCI China Index gained 7.4%2. In October, the USD appreciated 1.9% against the AUD. The currency hedging, as a result, was a key detractor to fund performance.
In October, the earnings resiliency supported the share prices of the consumer-related sectors on the mainland and contributed to our portfolio returns. In particular, e-commerce and baijiu names rallied on the robust demand. The latest Five Year Plan confirmed the goals to digitize the economy and bring quality growth. Another sector that recorded good performance was financials, which benefitted from the continuous encouraging macro data.
Other than currency impacts, the real estate and education sectors were negatively impacted by investors’ concerns over tightened regulation. We remain constructive on quality real estate developers amid tightened credit policy and higher education operators as they should be less affected.
While the U.S.’ attitude towards China remains uncertain, China’s determination to develop the nation’s self-sufficiency reassures us on the outlook of our investment themes. Thus, our preference for domestically-focused companies remains unchanged.
ticker: MAQ0441AU
commentary_block: Array
factsheet_url:
https://www.premiumasiafunds.com.au/funds/premium-china-fund/
Updates & Reports => Monthly Factsheet
release_schedule: Monthly
fund_features:
Premium China Fund is a managed investment scheme which invests primarily in companies listed in Hong Kong, companies listed in Mainland China, companies listed in Taiwan and companies listed on other stock exchanges but with significant assets, investments, production activities, trading or other business interests in the Greater China region, or which derive a significant part of their revenue from the Greater China region.
- May also invest in cash and short-term money market instruments.
- Aims to provide long-term capital growth over a three to five year period, prior to exchange rates effects.
- Yearly income distribution.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Asia Pacific w/o Japan
peer_benchmark: Foreign Equity - Asia ex Jap Index
broad_market_index: World Emerging Markets Index
structure: Managed Fund