uploads///Performance of China focused Mutual Funds

SSE Composite Index Rose after Rate Cut Announcement


Mar. 4 2016, Published 11:18 a.m. ET

SSE Composite Index rose

The Shanghai Stock Exchange (or SSE) Composite Index rose by 4.3% from February 25 to March 3 to end at 2,859.76 on March 3, 2016, after China’s central bank, the People’s Bank of China (or PBoC), announced its fifth rate cut since February 2015 on February 29. The PBoC cut its reserve requirement ratio (or RRR) by 50 basis points in an effort to provide liquidity to the financial system and to boost the economy. The surprise rate cut came just before the release of official PMI and non-PMI data. It is estimated that due to the cut, around $100 billion in cash will be freed up for fresh lending.

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The SSE Composite Index includes all listed stocks (A-shares and B-shares) on the Shanghai and Shenzhen Stock Exchanges. A-shares are shares denominated in domestic currency and are available only to local investors. On the other hand, B-shares are shares denominated in foreign currency on the Shanghai Stock Exchange and in Hong Kong dollars on the Shenzhen Stock Exchange. B-shares are available to foreign investors.

Moody’s cut China’s outlook rating

On March 2, rating agency Moody’s cut China’s outlook rating from stable to negative due to the continued drop in foreign exchange reserves and the weakening of fiscal metrics. Moody’s was of the opinion that China’s fiscal position would deteriorate further, albeit from “very high levels.”

Moody’s said, “Their decline highlights the possibility that pressure on the exchange rate and weakening confidence in the ability of the authorities to maintain economic growth and implement reforms could fuel further capital outflows. In particular, a fall in reserves – corresponding to sustained deposit outflows – could raise pressure on the deposit-funded banking sector.”

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Returns of China-focused mutual funds

The Neuberger Berman Greater China Equity Fund–Class A (NCEAX) was up by 5.2% and became a top performer from February 25 to March 3, 2016.

The AllianzGI China Equity Fund–Class A (ALQAX), the John Hancock Greater China Opportunities Fund–Class A (JCOAX), and the Columbia Greater China Fund–Class A (NGCAX) were up by 5.0%, 4.4%, and 3.9%, respectively. Meanwhile, the Fidelity Advisor China Region Fund–Class A (FHKAX) rose by 3.5% for the period.

Due to a rebound in oil prices, shares of China Petroleum & Chemical (SNP) and CNOOC Limited (CEO) were up by 11.8% and 9.8%, respectively, from February 24 to March 3, 2016. For the same period, American depositary receipts of Chinese companies Baidu (BIDU) and Alibaba (BABA) were up by 12.1% and 6.5%, respectively.

In the next article, we will analyze China’s official manufacturing purchasing managers’ index.


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