Q4 Update: All eyes on China

Q4 Update: All eyes on China 

BY KIM LEE, SENIOR FUND MANAGER

The last quarter of 2018 witnessed extreme volatility in the global markets and Asia was no exception. Investor sentiment was driven by Sino-US trade war rhetoric and a stream of weak economic data from China. The Chinese policy makers re-iterated their pro-growth stance and beefed up efforts to stabilize the economy by continued easing of monetary policy as well as increasing fiscal stimulus. In an unprecedented move, President Xi of China met up with the private sector from across the industries to address their various concerns, endeavouring to shore up their confidence in the government and the local economy. At all the high level meetings e.g. State Council meetings and Politbura meetings among others, policy makers continued to emphasize the aim and importance of supporting growth while stressing their effort in opening and reforming the Chinese economy. US President Donald Trump and Xi’s meeting at G20 in Argentina was seen as the olive branch and the inflection point in the current trade war standoff, even though it was somewhat spoilt by the arrest of the CFO of Huawei, the Chinese multinational conglomerate which specialises in telecommunication equipment and technology-based services. The arrest led to heightened geo-political tensions between China and Canada and a series of tit for tat events which is more likely to hurt Canada rather than the Chinese economy. 

The Hong Kong/Chinese market underperformed the rest of Asia over the quarter, as investors looked to Asean and other markets for safe haven. While we are likely to see some more weak Chinese data over the next couple of months, the market has already discounted the bulk of the bad news. More stimuli are expected in the coming Liang-hui in March, such as a corporate tax cut, VAT cut, and consumption stimulus. Both Chinese domestic investors and overseas investors are warming up to Hong Kong/Chinese/Asia markets, as these markets are trading at levels last seen during Global Financial Crisis in 2008/9. The dovish message from the US Federal Reserve that indicates the likelihood of US interest rate peaking and hence subsequent weakness in US dollar also augurs well for Emerging/Asian markets. While both the US and China are indicating good progress in the current trade negotiations and Trump has shown strong desire for a deal, the likelihood of a temporary truce still remains as long term and structural issues are more tricky to resolve. Notwithstanding that, investors are pleased with the progress and willing to buy the market. Our funds have increased weightings in Hong Kong/China at the expense of the other markets.

Important Information

Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments can fluctuate. Currency fluctuations can also affect performance.

The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). 

Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

CLI01346 Expiry on 30 April 2019

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