China’s housing market takes off
Asian stock markets were weaker in April, after a small rally in March. The Carnegie Asia fund fell in value by 1.8 percent.
China reported economic data, with GDP growth for 2015 of 6.7 percent, which was in line with expectations. The government’s target for next year is for the economy to grow by 6.5 percent. The Chinese stock market received an initial fillip in April when exports showed growth of 18 percent over the previous year. Investment and retail sales also demonstrated decent growth. In addition, sales of newly built homes rose by an annualised 16 percent.
These signs of somewhat better performance in China are a result of cuts to interest rates and bank reserve requirements that started in November 2014. There was also government action last year on infrastructure investment. In the housing market, the government decided to change the rules for home buyers in order to fuel sales and reduce the stock of unsold apartments held by construction companies. Lower deposits and preferential loans for first-time buyers are two measures that helped to reduce inventory levels in the major cities.
The fund sold its holdings in China Mobile, Alibaba Group and Catcher Technology during the month. Sun Pharmaceutical, in India, was also sold. The stake in Asian Paint was reduced since rising oil prices will have a negative impact on the company’s margins, making its valuation difficult to justify.
New investments were made in China Merchant Bank, CNOOC, Brilliance China Automotive and Anta Sports Products, which sells sportswear. We also increased the investment in real estate company Vingroup in Vietnam. In Thailand we bought more of Airports of Thailand and Central Plaza Hotel.
In summary, the fund has reduced its exposure to some defensive companies with comparatively high valuations, while new investments were made in companies that have lower valuations but are more cyclical in nature.