TX Capital in 2018
China Shanghai A-share and offshore MSCI China fell -12% over Q4 2018 and ended the year with -23% and -19% losses respectively. Offshore Hang Seng and H-share indices both lost -8% over the quarter and -10% in 2018. Poor Q4 returns were driven by sharp sentiment deterioration in October amid real economy slowdown and escalation in China-US trade conflict. The fund lost -15% over the quarter and -3.3% in 2018. By the end of December, the fund has increased its net exposure to 117%, aligned with its Q3 comments of adding exposure on the back of continued stock market correction. In hindsight, the fund underestimated the magnitude of real economy slowdown and increased its long positions too early. They also added to sectors that are less defensive, which contributed negatively.
Generally, the fund's view is less pessimistic than the street. Since June 2018, trade conflict escalation between China and the US, economic slowdown, and potential policy/regulatory risks triggered the market decline. Uncertainty eroded confidence amongst investors, consumers and business owners and many of them adopted a wait-and-see approach. With prolonged period of negative sentiment, the market eventually took a sharp dive in October as they started to observe real impact on the Chinese economy and company fundamentals. They believe that China and the US will eventually come up with an acceptable solution regarding the trade confliction situation. The Chinese government will slow down deleveraging plans and provide fiscal stimulus to support the economy. Additionally, market valuation level is at multi-year low and dampened 2019 earnings growth is widely expected by market participants.
Greater China
TX Capital Value Fund is a Greater China-focused long/ short (long biased) equity fund that applies value investment strategy to build a concentrated portfolio based on companies’ business fundamentals and intrinsic values, investing only in stocks with quality, growth and value. [endif]
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