FMG (EU) China Fund gained 6.8% in the 2nd Quarter of 2017
A Shares in China gained 2.2% (MSCI China A) during the quarter, but lagged both the Hong Kong shares and emerging markets in general. During the quarter, the regulator introduced tougher measures targeting major shareholders and insiders to alleviate short-term selling pressure from these influential groups. Furthermore, tighter rules were implemented on so-called ‘quasi-fiscal financing’ (local government financing rules) and shadow financing, which has nearly ground to a halt. The result is that bank loans have been boosted as shadow loans are now back on the balance sheets. MSCI announced on 21 June the inclusion of 222 A-shares, with 0.73% weight, in the powerful MSCI EM Index, which is followed by about $1.6 trillion in assets. It has taken a long time for MSCI to arrive at its conclusion to include domestic China A shares and it marks an important milestone for all EM focused global investors.
China reported 2nd quarter GDP growth of 6.9%, which was slightly ahead of expectations. The growth target set by Chinese officials in Beijing is 6.5% for 2017. Looking 12 months back, retail sales grew by 11%, also better than expected. The rating agencies continue to maintain their A+ rating for China with a stable outlook.
On upcoming events, the once-every five years Communist Party Congress (number 19) will be held in the Fall and typically involves top leadership changes.