01.03.2018

Diamond Capital Management (Switzerland) Ltd.

China's president to stay for life ?

Our fund (Angsana Bond Fund) is up YTD 0.70% and reacted very little during the sell-off during the first two weeks in February. See attached factsheet and some market commentary below:

China's president to stay for life ?

China’s president Xi Jinping decided to drop Chinese presidential term limits and thereby opened the possibility to a lifelong leadership.

What does it mean for investors ?

China’s portfolios will be increasingly tied to one man – should be largely positive for Chinese assets

  • It enforces his position to lead the economy from an investment driven through to a consumer/services driven economy
  • Continuation of gradual opening up of China (i.e. allowing foreign investors to participate in the domestic market)
  • China is only half-way through reforms and economic transformation, policy continuity is crucial
  • More power and discipline to push through policies, such as De-leveraging, De-stocking in Real Estate, clamp down on shadow banking, anti-pollution campaigns
  • Overall a good sign - China is able to get things done

Threats:

Fewer checks and a lack of accountability could lead to risks of policy errors Lack of transparency could undermine market confidence on the yuan in the medium term Lack of political debate in China – But from an investment perspective this is positive – it ensures a stable financial system

So far with Xi in power, the economic transition from an investment driven to a consumption driven economy has been quite smooth, so has the gradual opening up of China. So a continuation of that is preferable, and that is what we are likely to get with Xi staying on.

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