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In the 4th quarter the market lost some of the momentum we had in the summer months. Despite that, the Fund had a very good year compared to the Shanghai Composite, ending in slightly positive territory compared to a 18% loss for the entire market. Despite most of that outperformance stemming from the CGT rebates we had in April, our managers were yet again the best performers amongst their peers.

2016 started off very badly for China A investors, with the market down 25% at one point. That somewhat recovered but the market remained a laggard for the year. Following two impressive years between 2014 and 2015, we think that 2016 served as a much-needed pullback and that China is now more positioned than ever to perform better in the medium term. Retail and government debt is now under control following years of overheating, which helps form a solid base of consolidated GDP growth. 4Q GDP is expected to come in at 6.7% as the monetary policies rolled out by the PBOC in the past 24 months start taking effect.

With forward P/E of 13x on the Shanghai Composite, we are well positioned for a strong, solid recovery in equity market pricess. The A-Share market was a laggard in 2016 versus other EM markets and this creates an opportunity for outperformance this year. We are now mostly positioned in the industrials and consumer discretionary industries, two sectors which tend to outperform in a strong, recovering ecoonomy.

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