From the MD’s Desk : Thoughts on China

  • Fear on the possibility of a systemic risk after the recent rapid sell-down in the China equity market cushioned by strong support from the government. While the possibility remains apparent, the on-going policy measures being taken and the tools that are still available may be able to steer the market to safety.
  • Recent market correction had made technical readings and valuations more interesting. However, market sentiment remains low with the recent selloff making it feel like a crisis in brewing has dragged investors’ sentiment down.
  • Forgoing our own path, and ignoring the herd mentality. We believe the recent rout was mainly due to the excessive speculation made by retail investors on China’s domestic equity market. The markets had risen too much and too quickly, and the recent correction, albeit overly dramatic, was well needed. Valuations are now looking more palatable, and with the government adamant on keeping market afloat, we think this is an opportunity for the brave.

 

How do we address these situations?

While the correction was anticipated, the rapid rate of the sell down came unexpectedly and dragged down the performance of our portfolios. However, given the fundamental investment strategy that we take, sectors that we have ventured into remain attractive with its long-term growth potential.

The regional portfolios did raise cash leading to the downward spiral of the market, providing it with the ability to take the current opportunity to move back into the market. As volatility is expected to remain apparent in the near-term given the ongoing uncertainties, I believe that it is advisable to remain tactically cautious, and remain diversified to address the possibility of further drag from the market.

 

Teng Chee Wai
Managing Director
Affin Hwang Asset Mangement