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In the 3rd quarter, the Fund remained defensively positioned, with a 25% cash position. Since March, the market continued trading in a very tight range with a low of 2800 and a high of 3125 on the Shanghai Composite, or a 5% upside and downside range.

Over the year, we were content with the progress of government reforms and were happy to witness a more robust effort to curb market inefficiencies witnesses earlier in the year. In fact, July marked the first case of a listed company being delisted for IPO fraud (Dandong Xintai Electric Co) since the securities regulator unveiled stricter delisting rules in 2014 in an effort to restore investors’ confidence and remove errant companies. Once again, MSCI has postponed the China A inclusion, but that should be tackled in 2017, bar any unforeseen circumstances.

Compared to a significant EM rally in 2016, the China A-share market lagged considerably. The Shanghai Composite has lagged the MSCI EM in each quarter in 2016, and thus valuations have started to look cheap, relatively speaking. With investor spotlights on other matters across the global equity market and with a much more solid base, we believe the time is once again ripe to start investing in what has been the lagging market of 2016.

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