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March 2024


After it saw the CSI300 index that tracks A shares dropping by 45% from its peak of 2021, the Chinese government finally took some actions this month to stop the meltdown of its equity markets. It also cut interest rates in an aggressive way to help the property market find a bottom after three years of crisis.

To boost equity markets, we saw the so-called “National Team” step in in a very public way and buy A shares using offshore RMB and the Stock Connect platform that links Hong Kong to Shanghai and Shenzhen markets. The Chinese government decided for the first time to use offshore RMB to prop up its onshore market. One can derive from that move that the leadership’s intention is to use domestically offshore money instead of seeing it being deployed overseas. The colloquially named “National Team” typically refers to state-related funds that act upon instructions from the government. More specifically, it covers China Securities Finance (that provides leverage to brokers), Central Huijin Investment (an arm of China’s sovereign fund), the State Administration of Foreign Exchange (in charge of regulating the foreign exchange market), the National Social Security Fund, and the largest state-owned brokerage firms (such as CITIC Securities).

The National Team built its reputation in 2015 when it bought RMB1.2 trillion worth of shares to stop the fall of the local A share market that had collapsed by 40% in a matter of three months. According to UBS which analysed the abnormal flows that went through 54 Chinese ETFs since the start of the year, the National Team poured in the market at least RMB410bn (USD57bn) year-to-date. That was the main catalyst for this month’s rebound. One can notice that the money spent this time on market intervention was only a third of what was spent back in 2015, possibly leaving room for more action.

The other reason are government-induced share buybacks across listed State-Owned Enterprises. Over the first three weeks of February, 721 companies bought back shares worth a total RMB22bn. This compares to approximately 200 companies buying back their shares in February 2022 for a total of RMB4bn, and an average of RMB7bn worth of shares being bought back each month last year.

On the monetary front, the five-year loan prime rate which is the benchmark used for all mortgages was cut by 25bps earlier this month from 4.20% to 3.95% to help the property sector find a bottom. Even though the move was well anticipated, the size of the cut was not. Economists had anticipated a 10bps cuts only. It was the steepest cut since the interest rate reform of 2019. This came on the back of a 50bps in the Required Reserve Ratio of Banks in January. It is likely a reaction to the latest property sales numbers that were nothing else than abysmal. Combining January data with February data to neutralise the impact of a fluctuating Chinese New Year, sales in volumes dropped by 48.8% YoY, and in value by 48.6%, knowing that last year’s numbers were already a steep fall from two years ago. Comparing to the same period in 2021 when the property market was at its historical peak, sales in volumes have dropped by a whopping 77%.

The most recent initiative taken by the Chinese government to revive its moribund property sector focuses on the completion and delivery of presold projects, and it seems to be gaining traction. A “whitelist” of 5349 real estate projects across the country was recently made public, and banks asked to provide financing to developers for the purpose of finally handing over apartments to those who bought them years ago, and often on credit. According to government sources, $22bn have already been loaned by banks for that purpose. It is worth noting that none of this money is meant to be used to repay the creditors of those developers, which in most cases are in default.

The Korean regulator also acted in February to boost the local securities market. The timing of such an announcement should not come as a surprise: Presidential elections are scheduled in April 2024, and this measure can easily be perceived as being politically motivated. The Corporate Value-Up program as it is named consists in requesting all listed companies to publicly disclose what measures they are going to implement to boost their market value. Tax incentives to be announced in June will be provided to companies that boost their dividend payouts, that buy back their own shares or that cancel treasury shares. Quantitative objectives will need to be disclosed by all listed companies, and such objectives will be published and updated on a quarterly basis on the stock exchange web site. The Korean government will give public awards to companies that reach their objectives in a timely manner. Admittedly Korea has always had one of the cheapest stock markets in the world, its average Price to Book ratio standing at 1.05x, same as ten years ago.

India surprised analysts once again with its most recent macroeconomic numbers. The final quarter of 2023 saw the Indian economy grow by 8.4% YoY, well above the 6.6% market estimate calculated by Reuters. The Statistics Ministry of India also revised upwards the GDP growth of the previous two quarters to above 8%. The government revised its prediction for full year growth in fiscal year 2023/24 (ending March 2024) from 7.3% to 7.6%. The high growth of the Indian economy is driven by manufacturing activity, up 11.6% YoY in the last quarter, and investments, up 10.6% YoY. At the other end of the spectrum are private consumption and government expenditures, up 3.5% YoY only for the former, and down 3.2% YoY for the latter. Such strong data can only help Narendra Modi’s party, the BJP, win the forthcoming national election scheduled for April/May, and see Mr. Modi reappointed for the third time as Prime Minister of India.


Monthly Performance

Source: Bloomberg, JKC – March 2024

After a horrific fall of 10.5% in January that tested for the third time a low point last reached in February 2016 and in October 2022, the MSCI China Index staged a strong rebound of 8.5% in February. However, investors remain sceptical as to whether we have seen the bottom. What offers us some comfort is that we heard several industrial companies reporting the end of inventory destocking and a gradual pick-up in customer demand. The relatively strong Chinese New Year consumption data also provided some hope of consumption bottoming out.

Last week China vowed to step up fiscal and financial support to a “large-scale equipment upgrading and consumption goods trade-in” program with the aim to boost domestic demand. Based on the limited information available to date, brokers suggest a potential impact of 0.6 percentage points of GDP, which does not appear to be enough to restore confidence. And no concrete measure to boost consumption has been announced so far. At this point it remains lots of talks and no action, which is unfortunately what the Chinese government can be blamed for over the past two years.

As many economists pointed out, including Martin Wolf, the Chief Economics Commentator at the Financial Times, the greatest challenge facing China’s economy is a long-term weakness in demand, which is the consequence of the damages done by falling housing prices, by falling stock markets and by a weak job market, resulting in a lack of confidence in the country’s economic future. The need to boost consumption is a consensus among economists. As Martin Wolf put it: “Few question the low central government debt ratio and the excellence of its debt creditworthiness, which is currently China’s strongest balance sheet asset. Therefore, increasing the fiscal deficit ratio is entirely feasible, and I believe it is the optimal countercyclical adjustment policy.” Awkwardly, Chinese observers seem to know what should be done and have been calling for action, but the Chinese government either appears to be much more relaxed about the problems at hand than the market is, or it is aware of structural issues that prevent it from acting forcefully, and that the market has not focused on yet. This feeling of indecisiveness at the helm of the country may be the critical reason why investors find it difficult to believe the worst is over.

Switching from a country no investor likes at present to one that is everybody’s favourite, we want to highlight that India is now the second largest country in the MSCI Asia ex Japan index, with a 21% weighting, coming close to China’s 26.6% weighting and now surpassing Taiwan’s 19.6% weighting. India is a consensus “Buy” for all, including us. Among all the reasons why most portfolio managers are bullish about India, what got us firmly on board is the trend that after decades of growth driven by consumption and services, India is finally dealing with its shortcomings by investing in physical assets (manufacturing capacity, infrastructure, and real estate). In the coming decades, we should witness vast job creation trends in manufacturing sectors, productivity enhancement through a build-up of infrastructure and fast urbanization through badly needed real estate construction. This in turn should bring further consumption upside, leading to stronger brand awareness and premiumization among the population. On the back of this long-term structural trend, we have built meaningful exposure to fast-emerging Indian brands. 


La Francaise JKC China Equity saw its NAV per share rise by 7.9% in February when the MSCI China index rose by 8.5%.

The cash position of the fund stood at 4.7% at the end of the month.

Our long-term holdings Shenzhou International, which lost 7.6%, and BOC Aviation, which declined 1.6%, were the biggest performance draggers. Our relatively high level of cash (approximately 8%) also hurt our relative performance when the market rallied. On the positive side, China Resources Beer, Honghua Digital, and Yum China outperformed the market, gaining 20%, 22%, and 27% respectively.  

On trades, we took some profit on Shanghai Bochu and added Yum China after it published a great set of results earlier this month. We also added some Rianlon and Xinyi Glass while we trimmed some Shenzhou International, Zijin Mining and BOC Aviation.


La Francaise JKC Asia Equity saw its NAV per share rise by 3.3% in February when the MSCI Asia ex-Japan index rose by 5.5%.

The cash position of the fund stood at 4.5% at the end of the month.

Our holdings Hansol Chemical that lost 15%, Shenzhou International that lost 7.6% and GMM Pfaudler that declined by 16%, were the biggest performance draggers. On the positive side, Yum China, Voltronic Power and Chroma ATE outperformed the market, gaining 27%, 19%, and 15%, respectively.  

Regarding trades, we added more to Titan Company, PVR Inox, Phoenix Mills and Oberoi Realty, while we trimmed GMM Pfaudler. We also added some Yum China and trimmed some BOC Aviation. We added to the portfolio Hyundai Motor and Kia Corp to benefit from the Korean “Corporate Value-up Program” mentioned above as the two companies significantly improved their global competitiveness over the past decade, especially during the pandemic.


In early February, a provisional agreement was reached between lawmakers in the European Parliament and the European Council regarding the regulation of ESG rating providers. The new regulation would bring ESG rating providers under the authority of the European Securities and Markets Authority (ESMA), with providers required to be authorized and supervised by the regulator and to comply with transparency requirements in methodologies and sources of information.

However, the Corporate Sustainability Due Diligence Directive (CSDDD), a crucial piece of EU legislation imposing mandatory obligations on companies to address their adverse impacts on human rights and the environment, faced a setback later in the month as it failed to secure final approval from the European Council. Key aspects of the legislation included requirements for companies to integrate due diligence on impacts into their policies and risk management systems, including descriptions of their approach, processes and code of conduct, in addition to obligating companies to adopt climate transition plans ensuring that their business models and strategy are aligned with the Paris Agreement goal to limit global warming to 1.5°C.

In China, Premier Li Qiang has signed new regulations for its carbon emissions trading system, including allocating responsibility to government ministries for overseeing and managing trading, and introducing stricter penalties for entities that falsify information.

Just before the lunar new year, the three Chinese stock exchanges announced the release of new sustainability reporting guidelines for listed companies. The guidelines include a new mandate for large companies and dual-listed issuers to initiate mandatory disclosure on a broad range of ESG topics starting in 2026. Mandatory reporting requirements will apply to large-cap companies that are constituents of major indexes such as Shenzhen 100, SSE 180 and STAR 50, as well as those that are dual-listed. Overall, the mandatory requirements apply to more than 450 companies representing approximately half of the total market value of China.

Coincidentally, in February the Singaporean Parliament also announced mandatory climate-related reporting requirements for both listed and large non-listed companies, with obligations for some to begin disclosing data in line with the IFRS’ International Sustainability Standards Board (ISSB). The reporting obligations will be implemented first with listed companies in 2025, followed by large, non-listed companies defined as those with at least $1 billion in revenue and $500 million in assets in 2027.

The information contained herein is issued by JK Capital Management Limited. To the best of itsĀ  knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed.

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