Shanghai Stock Exchange Composite Index rose
The Shanghai Stock Exchange (or SSE) Composite Index was up by 0.6% from October 16 to October 23, 2015, and ended at 3,412.43 points on the week ended October 23, 2015, as the People’s Bank of China (or PBoC) announced its sixth rate cut since November 2014. The PBoC lowered its one-year benchmark bank lending rate by 25 basis points, to 4.35%.
This monetary easing policy came as the GDP (gross domestic product) growth rate for 3Q15 came in at 6.9% year-over-year (or YoY), down from 7.0% in the previous quarter.
How was the third quarter for the Chinese economy?
The third quarter was very volatile for the Chinese economy. Due to the stock market rout in August, Chinese investors lost their hard-earned money. China’s equity markets were down by almost 30%. Then came the devaluation of the Chinese yuan by the PBoC in August to support exports.
On August 25, 2015, the PBoC slashed its benchmark lending rate by 25 basis points to 4.6%, its fifth rate cut since November 2014. It also trimmed banks’ reserve requirement ratios by 0.5%.
However, all economic data such as GDP, exports, and industrial production indicate weakness in the Chinese economy. As a result, on October 20, 2015, Yum! Brands (YUM) announced the spin-off of its Chinese operations. Similarly, big Casinos such as Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are seeing a drop in their revenues.
Impact on China-focused mutual funds
Returns from October 16 to October 23, 2015, were positive for China-focused mutual funds, namely the Clough China Fund – Class A (CHNAX), the John Hancock Greater China Opportunities Fund – Class A (JCOAX), the Eaton Vance Greater China Growth Fund – Class A (EVCGX), and the Guinness Atkinson China and Hong Kong Fund (ICHKX).
The Guinness Atkinson Fund posted the highest weekly returns of 1.6%. The Eaton Vance Fund stood in second with returns of 1.1%, and the John Hancock Fund closely followed with 1.0% returns. The Clough China Fund provided the lowest returns of 0.8%.
Due to volatility in oil prices, American Depository Receipts (or ADRs) of Chinese companies such as CNOOC (CEO) and PetroChina (PTR) were down by 2.8% and 1.9%, respectively, from October 16 to October 23, 2015.