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A stream of Chinese capital

ShanghaiAsian markets fell broadly in February, while Carnegie Asia’s value remained unchanged over the month. The performance was a mirror image of that in January, with the market falling 5% while the dollar strengthened by the same amount.

February was a troubled month, to say the least. Fresh concerns from the United States, such as rising bond yields, comments from new Fed chair Jerome Powell about further rate hikes, and protectionist measures in the form of steel tariffs all led to a declining willingness to invest.

The Hong Kong stock exchange was heavily driven up in January by local Chinese capital flowing across the border. This flow reversed in February when the Chinese sold to take profits before the Chinese New Year. There is currently no strong overall trend. The stock market was heavily influenced by flows in different directions, creating a nervous and short-term reaction. Best to hold on tight.

China’s National People’s Congress began in March. There is a proposal to amend the constitution to allow Xi Jinping to remain as president even after 2022, further consolidating his power. Xi Jinping is now increasingly often compared to Mao Zedong, who ruled China as the president of the Communist Party from 1949, when the party took over power, until his death in 1976. Xi Jinping is also aspiring to the title of party chairman. The president’s growing need for control is bringing ever-tougher regulations for several important sectors such as banks, construction and real estate, and for heavy cyclical industries.

Earnings performance for Chinese companies looks strong and valuations are not challenging. However, the fact that Hong Kong’s stock market development is increasingly governed by Chinese capital means that future performance becomes more unpredictable due to the short-term behaviour of these investors.

Carnegie Asia made new investments in China Light & Power, Power Assets Holding, DBS Group Holdings, Maybank, Tenaga Nasional and Singapore Telecom. The holding in PC Jeweller was sold in full.

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