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Struggles continue for Baillie Gifford China Growth

230214 ACIC China

Baillie Gifford China Growth announced annual results for the year to 31 January 2023. NAV total return was -5.7% while shares dropped 7.9% compared with a total return of -2.2% for the MSCI China All Shares Index (in sterling terms). In the period from 16 September 2020 (the date of the adoption of the China strategy), the company’s net asset value and share price returned -14.2% and -16.4% respectively compared to a total return of -12.7% for the MSCI China All Shares Index (in sterling terms). The discount reached 12% at the latest close. 

The performance so far has been disappointing however the chairman, Susan Platts-Martin, has asked shareholders to judge performance over periods of five years or more. Commenting on the results, she noted:

“The 12 months under review has been a volatile and disappointing period for Chinese equities. For the majority of the Company’s financial year, the Chinese economy struggled with physical lockdowns resulting from its Zero Covid policy and market sentiment was negatively impacted by regulatory crackdowns, as well as politics and geopolitics. In the last quarter of the company’s financial year, there has been more positive news to report as China began to reopen earlier and more quickly than expected bringing the timing of the economic recovery forward. 

“Given travel restrictions to China, in April 2022 the board met virtually with the managers’ team based in Shanghai engaging with the various individuals on a number of topics relevant to the company. The  ‘boots on the ground’ in China is a key strength of the managers that the board identified early on when considering the change of manager in 2020. The  board were impressed with the calibre of the individuals who are working, alongside the team based in Edinburgh, to identify the best stocks for the company’s portfolio.”

Regarding the outlook, Platts-Martin continued;

“China’s macroeconomic, regulatory and pandemic policies are looking to align with a pro-growth stance, for the first time in three years. China is likely to be one of the very few major economies where growth could accelerate in 2023, enjoying a re-opening like much of the rest of the world experienced in 2022. In addition and unlike the majority of the world, China is experiencing extremely low inflation (averaging approximately 2% at December 2022).

“The rapid re-opening from Zero Covid, the increased household savings and clear domestic policy support for growth for 2023 all point towards the ‘need’ for a strong recovery. China has a very different development model from the West and it is important to understand the context of the changes happening in China. The Managers Report details the principles to be borne in mind when investing in China. There are several risks, not least geopolitical, where misjudgements notably in respect of Taiwan could lead to severe market disruption. However, whilst China is a market where there is likely to be ongoing short term volatility, the prospects for significant long term growth remain.”

BGCG : Struggles continue for Baillie Gifford China Growth

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