After a strong showing in January, Chinese equities had a mixed performance over the month. Heavyweights in the new economy sector saw more profit taking, while gains were led by the mega cap cyclicals. The CSI 300 was down 0.28% (0.98% in US$ terms), while the Shanghai Composite gained 0.75% (0.04% in US$ terms); the Hang Seng Index on the other hand rose 2.46% (2.42% in US$ terms).
The tightening up in market liquidity was one of the reasons for the correction. PBoC officials have mentioned earlier that there are potential bubbles in the property and stock market, subsequent actions such as open market operations and adjustments to the medium-term lending facility (MLF) reduced liquidity in the open market, affecting market sentiment at the same time. However, outlook for the year is still likely positive. Although some of the figures are trending down, fundamentals remain on the positive side, economic growth outlook is still poised to be among the best in 2021 globally, which makes Chinese equities an attractive investment option.
As for policy direction, the ‘Two Sessions’ were held in early March, where we saw a summary of the Chinese policy and development direction in the short to medium term. Economic target for the year was set at a modest level of 6%, similar to our expectations at the start of the year. Another highlight in the ‘two sessions’ was the future carbon roadmap in the country, where the focus was on sectors such as electric vehicles and clean energy network, which is key to achieving the targets of carbon neutrality by 2060. These will likely be some of the sectors in focus with the greatest growth potential in the medium to long term.
