Tactical stock selection key to navigating US/China trade implications
Investors will need to be more tactical in their approach to China but should not become timid amid the continuing possibility of a full-blown Sino/US trade war.
That is the assessment of Premium China Funds Management which believes that while the situation has yet to play out and should not be over-blown, investors need to understand that some sectors will be more affected than others.
It said the sectors likely to be most affected by an escalation of the trade tensions included technology, transportation, commodities and energy with the financial brokerage sector also facing the possibility of pressure amid volatile may also be pressured by the volatile stock markets.
Premium China Fund’s Jonathan Wu said that it was this possibility which had persuaded the manager to use the past six months to underweight its position in these sectors.
“Our bottom-up stock selection has been focusing on domestically driven sectors such as consumption and healthcare where we found quality fundamentals more insulated from the global trade environment,” he said. “These sectors have taken up 38.1% and 50.9% in Premium Asia Fund and Premium China Fund respectively.”
Wu said that PCFM had also ensured minimal exposure to export-oriented Chinese companies.
“In particular, both Premium Asia Fund and Premium China Fund’s top 10 holdings have minimal impact from the current trade discussion as illustrated in the tables below,” he said. “In Premium Asia Fund, our holdings in information technology sector are mainly Taiwan and South Korea companies, which the impact would be much indirect from this round of trade talk.”
Wu said PCFM’s underlying analysis suggested that the most recent statements made by US President, Donald Trump were likely a negotiating tactic.
“We expect both nations are motivated to strike a deal and the near term market volatility will not be a major concern for long term investor in the Chinese equity markets,” he said.