Liontrust China Fund Q4 2021 review | Insights | Liontrust Asset Management PLC

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust China Fund returned -6.3% over the fourth quarter, versus the IA China/Greater China which returned -2.8% and -6.5% from the MSCI China Index (both comparator benchmarks)*.

Sentiment around the Chinese market remained weak this quarter, resulting in a decline in the index of -6.5%. Concerns increased over Chinese companies listed in the US after Didi, a ride-hailing company, was asked to delist from the US by the Chinese government after its IPO. This was due to the sensitive nature of the company’s data, which the Chinese government deemed a cybersecurity risk. Sentiment was also impacted when Evergrande, a property developer, officially defaulted on its dollar debt, signalling further volatility in the real estate sector and raising concerns around the larger economy. However, the government has announced a set of easing measures to help support the industry and we believe it is likely there will be accommodative central bank policy to support growth in 2022.

The Liontrust China Fund returned -6.3% in the quarter, above benchmark return. Underperformance came from the real estate sector, which saw increasing concern around defaults, as well as the staples sector, which was impacted by data outlining the declining birth rate, dampening the outlook for infant milk formula sales. In contrast, despite a regulatory overhang, Netease, a gaming company, performed strongly after successful new game releases and upcoming overseas expansion. Our holdings in the automaker and auto parts manufacturing space also outperformed as the industry recovers from a chip shortage and as EV sales continue to beat expectations. Finally, the Taiwanese holdings in our portfolio held up well as they were insulated from regulatory concerns in the mainland.

This quarter, we added a lithium producer to the portfolio, which we believe will benefit from a strong demand outlook coupled with constrained supply. This was paid for by further reducing our exposure to the travel industry as forecasts of reduced travel restrictions have been impacted by the emergence of the Omicron variant and China’s continuing zero-Covid policy. We also sold an online video platform due to the uncertain regulatory environment as well as a reduced growth outlook and lack of catalysts. Finally, we added a company focused on pneumatic components due to a strong market growth outlook and as order momentum recovers and power rationing in China eases. This was paid for by selling another industrials company focussed on linear motion products.

China is still committed to a zero Covid strategy and continues to effectively handle new outbreaks with renewed lockdowns and widespread testing. It is likely this strategy will remain in place in the short term with the Winter Olympics and the National Party Congress taking place in 2022. Sentiment remains cautious but we believe the pace of regulatory announcements has eased and focus will turn to implementation. As outlined in the five-year plan, we believe China will continue to place emphasis on technological development, domestic consumer demand and the transition to cleaner energy. Stocks are now trading at a considerable discount to long term averages providing an attractive value proposition.

Discrete years' performance (%)**, to previous quarter-end:

	Dec-21	Dec-20	Dec-19	Dec-18	Dec-17
Liontrust China C Acc GBP	-16.7%	26.5%	17.0%	-14.6%	33.1%
MSCI China	-21.0%	25.5%	18.7%	-13.8%	40.7%
IA China/Greater China	-10.7%	33.5%	22.2%	-14.2%	35.9%
Quartile	3	3	3	2	3

*Source: FE Analytics as at 31.12.21

**Source: FE Analytics as at 31.12.21. Quartiles generated on 07.01.22.

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Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

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