Insight on Mandatory Provident Fund – November 2019

Expectations on a “phase one” U.S.-China trade deal boosted sentiment in the Greater China equity market throughout October in spite of moderating economic performance.

The positive progress in trade talks signals a potential de-escalation in trade tensions as top officials of the U.S. and China in October agreed to a trade truce, paving the way for an anticipated deal signing later this year. A thaw in trade tensions is conducive to dispelling fears on China’s weakening economy as GDP growth edged down further to 6.0% year-on-year1 in the third quarter.

While Beijing’s Fourth Plenum held in late October focused on political governance rather than providing clues on stimulus, we expect China to remain nimble and data-dependent to maintain stable growth. This is evidenced by the People’s Bank of China’s first rate cut on medium-term lending facility (MLF) since 2016 in early November, against the backdrop of synchronized easing efforts in Asia.

The tentative trade truce, incremental policy supports and an overall loose policy environment in Asia tend to bring upside catalysts for equities and help corporates fare better amid macro headwinds. These shall provide tailwinds to Chinese corporates, which announced broadly in-line-with-expectation third-quarter earnings results, and hint the fundamentals are improving, which support the earnings recovery in China.

The Fund grew 4.9% in October and outperformed the benchmark FTSE MPF Greater China Index’s 4.6% increase. The technology, healthcare and financial sectors contributed most to the outperformance during the month. The technology sector continued to deliver good performance in October. The top contributors in the technology sector included the largest semiconductor company and a leading smartphone chipset maker in Taiwan. Both Taiwanese companies are expected to benefit from the ramp-up of 5G smartphones and network infrastructure in the future. In addition, a local service internet company in Chinese mainland was also among the top contributors, driven by expanding market share and a better earnings prospect. Sentiment towards the financial sector also improved as the optimism in trade talks alleviated global recession concerns.

The portfolio manager continued to trim stocks in Taiwan to take profit and accumulate positions in the consumer and technology stocks in Chinese mainland. For technology stocks, the portfolio manager mainly accumulated those with cheaper valuations. The portfolio manager also increased weightings in China’s real estate sector due to better-than-expected contract sales in September and October and a stabilizing renminbi. Meanwhile, the portfolio manager also added some stocks in the Hong Kong stock market such as Macau gaming companies, because the sector’s valuation is close to historical trough level and the portfolio manager believes this sector may be less affected by Hong Kong’s social unrest.

The portfolio manager remains conservative on the global economic outlook. Nevertheless, valuation appears to be attractive for Chinese stocks and the portfolio manager remains positive on China A-shares.

  1. Source: National Bureau of Statistics of China, 17 October 2019

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.