Carmignac Portfolio China New Economy

China’s weak economy remains a burden, as reflected in the publication of lower retail sales.

As far as manufacturing indicators go, the Caixin PMI sat in expansion territory. This contrasted with the official NBS PMI, which focuses on state-owned large caps.

The government unveiled new measures to shore up the property market, making it easier to get a mortgage and reducing the minimum deposit.

Overall, Chinese domestic markets (CSI 300) were down over the month, whereas the Hang Seng was up.

The Fund delivered a positive monthly return and beat its reference indicator.

Our selection of technology stocks including Daqo New Energy, Mediatek and Taiwan Semiconductor greatly benefitted the strategy.

However, our consumer discretionary portfolio weighed on performance, largely due to e-bike manufacturer Yadea and to Anta Sports Products.

Despite short-term volatility and the structural challenges facing the economy, we still have an optimistic view of Chinese equity markets.

We are seeing a slight improvement in certain economic indicators. Foreign demand is heading in the right direction too, and local government stimulus is starting to pay off.

However, China’s structural problems remain with domestic consumption barely moving, especially among the middle classes now that house prices have fallen and youth unemployment is high.

We feel sure that our approach, focused on a fundamental analysis and enterprise values, is the best way to generate positive long-term returns on Chinese markets. We remain convinced about the potential for China’s and Taiwan’s new economies and, in particular, the secular trends that we are seeing in artificial intelligence, the green transition and healthcare.

Our portfolio is mostly positioned on companies that are leaders in their fields and are generating high cash flows, such as Miniso, New Oriental Vipshop and Tencent Music.

We are also keeping significant exposure to Taiwan, mainly through companies along the semiconductor supply chain, which should benefit from the AI cycle.

During the month we strengthened our position in VIPShop, which is very attractively valued. The company may have announced solid results with higher net margins, but it is still cheap when compared with other internet stocks.