Investors were duly rewarded during the quarter after a sluggish 2018.  As investors returned from their Chinese New Year holiday in February, the A-share market’s momentum accelerated and the market was up 15.0% for the month, the largest gain in four years since the last correction.

Investors’ long-suppressed enthusiasm was fired and replaced by a host of positive factors like new-loan growth, the promotion of the Science and Tech Innovation Board (STIB), apparently positive signs in the US-China trade talks and MSCI’s announcement of an increased weighting (more below), as well as anticipation of policy initiatives to emerge at the upcoming meeting of the National People’s Congress.

On the economic news, GDP growth stayed flat at 6.4% while the official (manufacturing) PMI rebounded to 50.5 in March from 49.2 in February and best improvement number in five quarters. Inflation remains benign at 2.3% in March and trade surplus at $33 billion.

Flow of funds got more good news for China A shares during the quarter as we learned in February that the so-called inclusion factor for the MSCI Emerging Markets Index will increase from 5% times three in May, August and November of this year. This will bring this hugely important index’s weighting to China A shares from its current 0.75% to 2.8% by year-end.  The expected money to be allocated to A shares is $70 billion according to Goldman Sachs.

Valuations remain attractive for China A shares with an estimated P/E for 2020 of 11 times in line with EM in general but faster growing and the USA has a P/E est for 2020 of 16 times.

Source:  Open Door, GAM

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