Insight on Mandatory Provident Fund – March 2018

The China equity market softened in February after having rallied strongly in January, with the MSCI China Index recording a negative monthly return for the first time in 13 months.  Volatility picked up during the month due to higher inflation expectations in the US, which led to worries in the market about a faster-than-expected pace of Fed rate hikes.  Meanwhile, weaker February macro data also led to concerns about the sustainability of China’s economic growth.

Despite the large market swings in February, we expect volatility to normalize in 2018 due to a series of major macro events such as the earlier-than-usual Third Plenary Session and the “Two Sessions” in early March.  While these major political events may spur reform and growth expectations in China, they may also weigh on near-term sentiment.  Furthermore, although the March US macro data should provide more clarity on the Fed’s rate hike schedule in 2018, Trump’s tariff plan has become one of the biggest near-term market risk factors.

Our MPF portfolio slightly underperformed the reference index in February.  Overall market sentiment turned dramatically from positive to negative on concerns of higher wage growth in the US earlier on, and then on concerns of the trade war triggered by the US later on.  In general, the market turned to a risk-off mode and sold off stocks that outperformed in the last few months.

Strategy highlights:
  • White liquor sector – the fundamental of the sector remained sound and we still believed in the consumption upgrading cycle
  • Chinese banks – the government’s tone on financial deleveraging during the National People’s Congress (NPC) meeting was milder than expected and the recent announcement on lowering the non-performing loan (NPL) provisioning requirement should be positive to the sector in the medium to long term.
  • China property – the government report reinforced our expectation that property policy would remain stable without drastic changes, thus, we keep our weighting in China property stocks.
  • Technology hardware sector – the destocking of the smartphone cycle may be close to the end. Thus, we had been accumulating tech leaders that are able to expand market share, product pipeline and client portfolio as we believe they will be the long-term winners


Performance data is net of all fees. Investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results.  Investors should read their own mandate for details. Individual stock performance is not indicative of fund performance.

The views expressed are the views of Value Partners Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.