For the year to 30th September 2016 JPMorgan Chinese achieved a return for its shareholders of +38.0%. This includes the final dividend of 1.80 pence paid in February 2016. The total return on net assets was +35.2%, this compares favourably with the return of 34.0%, a combination of the MSCI Golden Dragon Index up to 26th January 2016 and thereafter the MSCI China Index.
Howard Wang will continue to lead the team with Emerson Yip as his deputy. Shumin Huang, as head of research, will oversee an enhanced team of analysts concentrating on the opportunities expected to emerge from amongst ‘New China’ companies listed on the ‘A’ share exchanges of Shanghai and Shenzhen. The Taiwan investment team remains unchanged and also is the regional home for a number of the analysts.
Stock holdings in China and Taiwan added value whereas the overall exposure to ‘A’ shares detracted as the onshore quoted companies lagged those companies quoted in Hong Kong and Taiwan. Gearing, which averaged 9.4% over the period, added value in an environment of rising markets.
Over the reporting period, stock selection in technology, particularly in Taiwan, continued to be a top contributor, while positions in select Apple supply chain companies worked well. AAC Technologies remains well-positioned for the strong upgrade cycle in acoustics. They believe the positive outlook for specification upgrades should continue to drive demand for dual camera lenses, benefiting Largan Precision. The overweighting in semi-conductor stocks also helped returns. Silicon Motion Technology, the fabless semiconductor company, added value and should gain from the adoption of Solid State Drive (SSD) in PCs, while Taiwan Semiconductor Manufacturing, the chip industry bellwether, continued to execute well and its shares hit all-time highs. Regina Miracle, a textile manufacturer, performed well as it recovered from the impact of its key customer, L Brands, changing business strategy whilst its sports products lines continued to grow. China Resources Gas, a natural gas distributor, benefited from strong growth in both sales volume and new residential connection rollouts, whilst at the same time remaining well positioned for a recovery in demand and an increase in market penetration. They benefited from underweight positions in China Mobile and Baidu Inc., which underperformed, as they continued to see better growth opportunities elsewhere.
Overweights in China Taiping Insurance and Ping An Insurance detracted on the back of fears about the increased risk of asset impairments. However in the long-term the managers believe they should be well supported by a secular tailwind in demand for insurance products. A handful of structural growth names also detracted from performance for stock specific reasons. Sino Biopharmaceutical fell on headline noise around plans to buy shares of China Cinda AMC and inventory de-stocking. CAR Inc also detracted on concerns over consumer demand, increasing competition given the Didi-Uber merger and weakness in its rental business, all of which contributed to the stock’s derating. They exited the stock as the fundamentals deteriorated. Spring Airlines fell sharply, along with the broader ‘A’ share market correction earlier in the year, over market concerns of aircraft delivery delays impacting the near term earnings; although the shares have subsequently rallied. Catcher also fell over fears that its growth outlook was under pressure given a decision by Apple to change its casing materials supplier resulting in significant pricing pressure. As a result they sold out of the holding. Additionally, JD.com corrected after failing to meet market expectations as gross merchandise volume growth dampened and adjustments in the marketplace caused some near-term disruptions. However, they continue to believe the company has the potential to be an efficient and profitable online retailer.
JMC : JPMorgan Chinese beats its new benchmark