October 2019
One noticeable feature of China A-share markets is how resilient they have been in the context of an escalation of the trade war, especially when compared to 2018. From the time when President Trump fired the first shot in the trade war in March 2018 to the end of that year, the China A market fell by more than 30% in USD terms. In comparison, since May 2019 when the trade war re-escalated, the China A market has been almost flat in USD terms, consolidating the significant gains from earlier in the year.
In this publication, we examine the reasons behind this recent stability as well as other trends we have noticed in recent months.
We believe that easing domestic credit situation and favourable fund flows have been major market drivers. Resilient company earnings also helped. Economic weakness in China means the improved liquidity environment is likely to continue. We also observed positive trends in governance including implementation of management incentive plans, share buy-backs.
As ever with the China A market, there continues to be heavy sector and stock rotation ‘below the surface’. Portfolio construction and risk management remain key to achieving alpha.
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