Liontrust China Fund

Q4 2019 review

The Liontrust China Fund returned 5.3%* over the fourth quarter, compared to 5.0% from the IA China/Greater China sector and 6.7% from the MSCI China Index.

 

Market Overview

The Chinese market recovered in the fourth quarter following volatility in previous months; market optimism returned as relations between China and the US improved. The two countries reached an agreement for “Phase 1” of the trade deal, which includes increased agricultural purchases from China to reduce the trade deficit in exchange for a reduction in tariffs from the US. Furthermore, concerns over growth eased in December as economic data showed improvement: industrial production growth, retail sales and industrial profits all notably increased in November. There was also news of further monetary stimulus to lower financing costs for smaller companies, which also helped to boost sentiment.

 

Portfolio Attribution

Stocks that performed well over the quarter included Baidu, the online search engine, after strong results from the third quarter and iQiyi, an online video streaming platform, partly due to an easing regulatory burden. The e-commerce names also performed well after growth acceleration and strong execution in smaller cities. Furthermore, a holding concentrating on food delivery also showed strong growth performance, despite higher subsidies and unfavourable weather, indicating strong demand in the sector. This was partly countered by some end of year profit taking in the sportswear names, after a year of strong outperformance, as well as weaker results from telecoms companies due to lower than expected mobile service revenue. 

 

This quarter, we reduced our holdings in the energy industry; we believe the outlook for the refining sector is one of oversupply and an area of potential regulatory change and therefore reduced our exposure. We also increased our position in the e-commerce sector as we believe there is significant room for further growth as companies expand into much less penetrated smaller towns and cities. This was funded by a reduction in our IT position where we exited a position in railway automation. Additionally, a proposal for the privatisation of one of our renewable energy holdings was announced at the beginning of the quarter at a considerable premium to current price.

 

Outlook

Phase one of the trade deal will be signed in January, putting a floor on potential decline in the US-China relationship; we believe this deal will hold until at least the presidential election in November. This stabilises the external environment for China and removes a headwind to growth, allowing us to have an improved outlook for the year. This year is also the year that the Chinese government will reach its goal of doubling the country’s GDP from 2010 levels. The GDP growth target for the year will be announced in March and we believe it is likely to be maintained at around 6% to ensure that the long-term goal is met. As a result, it is likely that targeted stimulus and measured easing will continue in order to maintain stable growth.

 

 

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

 

Dec-19

Dec-18

Dec-17

Dec-16

Dec-15

Liontrust China C Acc

17.0

-14.6

33.1

18.1

-0.2

MSCI China

18.7

-13.8

40.7

20.4

-2.5

IA China/Greater China

22.2

-14.2

35.9

18.5

0.9

Quartile

4

2

3

3

3

 

*Source: Financial Express, as at 31.12.2019, total return (net of fees and income reinvested)

 

**Source: Financial Express, as at 31.12.2019, total return (net of fees and income reinvested)

For a comprehensive list of common financial words and terms, see our glossary here.

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. 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.

 

Disclaimer

 

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Thursday, January 23, 2020, 3:22 PM