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The China A Share market’s activity in the 1st quarter of 2016 can be encapsulated in the first two weeks of trading, with the market falling 25% and only bouncing back slightly throughout the remainder of Q1. The Fund slightly under-performed the Shanghai Composite, which was down 13%. We are seeing notable improvements in the economy as evidenced by the recent PMI which for the first time in nine months came above the 50 level, signaling an expansion of the economy. The rate cuts implemented by the PBOC have finally starting showing some signs of filtering through to the real economy, with real estate prices rising continuously for example.Some other catalysts that we should look out for are:

  • Real Estate – A lowering of up-front deposit requirements for home owners, from 30% to 20%, and a decrease in deed and sales taxes
  • Tax – A major tax overhaul will begin in Q2 with a new VAT system replacing the current business tax, giving finance, real estate and consumer services significant tax reduction;
  • Pensions – A new pensions policy allowing Chinese pension funds to invest up to 30% in stocks;
  • Markets – China inclusion in MSCI indices is still very much on the cards

There was an important personnel change in the CSRC in February. The new chairman of the regulatory body is Mr. Liu Shiyu, who has extensive experience in both commercial and central banking. So far the market has taken this move very positively. Amidst all these positive catalysts, valuations remain reasonable, with the CSI 300 trading at a reasonable 12.3x. Source: Bloomberg

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