United Greater China Fund

Transcription

1 United Greater China Fund Semi Annual Report for the half year ended 30 th June 2018

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3 MANAGER UOB Asset Management Ltd Registered Address: 80 Raffles Place UOB Plaza Singapore Company Registration No. : Z Tel: DIRECTORS OF UOB ASSET MANAGEMENT Lee Wai Fai Eric Tham Kah Jin Peh Kian Heng Thio Boon Kiat TRUSTEE State Street Trust (SG) Limited 168 Robinson Road #33-01, Capital Tower Singapore CUSTODIAN / ADMINISTRATOR / REGISTRAR State Street Bank and Trust Company, acting through its Singapore Branch 168 Robinson Road #33-01, Capital Tower Singapore AUDITOR PricewaterhouseCoopers LLP 7 Straits View, Marina One East Tower, Level 12 Singapore

4 A) Fund Performance 3 mth % Growth 6 mth % Growth 1 yr % Growth 3 yr Ann Comp Ret 5 yr Ann Comp Ret Since Inception 10 yr 29 May 1997 Ann Ann Comp Comp Ret Ret Fund Performance/ Benchmark Returns United Greater China Fund Benchmark Source: Morningstar. Note: The performance returns of the Fund are in Singapore Dollar based on a NAV-to-NAV basis with dividends and distributions reinvested, if any. The benchmark of the Fund: MSCI Golden Dragon. For the 6 months ended 30 June 2018, the net asset value of the Fund fell 0.91%, underperforming the benchmark MSCI Golden Dragon index, which inched up 0.23%. The Fund s underperformance was largely due to negative selection in China Consumer Discretionary and the slightly negative selection on Information Technology. In terms of country allocation, the Fund was slightly overweight on China, neutral on Hong Kong and underweight on Taiwan over the period, where Taiwan outperformed. On the positive side, China Materials and Hong Kong Consumer contributed positively to performance and we were overweight these sectors during the period. Key contributors to the Fund s performance included China Resources Cement, Anhui Conch, CSPC Pharmaceutical, Haier Electronics, Sasa International, Galaxy Entertainment and Largan Precision. Key detractors from performance include Landmark Optoelectronics, Guangzhou Auto, China Zhengtong, MGM holdings and AAC Technologies. As at end June 2018, the Fund had the following sector allocation: Information Technology (36.81%), Financials (25.74%), Real Estate (9.08%), Materials (7.91%), Consumer Discretionary (7.54%), Health Care (3.90%) and others (4.90%), with the remainder in cash (4.12%). The Fund had the following country exposures: China (50.92%), Hong Kong (22.09%), Taiwan (20.82%), Macau (2.05%) and the remainder (4.12%) in cash. Economic and Market Review The Greater China equity markets ended the first half of 2018 relatively flat, underperforming developed markets, but outperforming most other emerging markets and Asia. The markets started the year strongly in January as good macroeconomic data, positive earnings revisions and weaker US dollar drove Asian markets. However the markets started correcting from February onwards, first led by the flash correction in the US markets and surge in the 10-year US Treasury yield as investors started worrying about tightening measures and the mounting US fiscal deficit. There were further headwinds for China equities due to concerns over domestic policy and monetary tightening with the government s unrelenting drive for financial and economic deleveraging. Headline news of rising bond defaults also rattled the Financial sector despite strong evidence of -2-

5 A) Fund Performance (continued) improving non-performing loans. In Hong Kong, property developers faced headwinds from rising US rates and HIBOR as liquidity tightened despite resilient property price index. Office and retail landlords fared better. Hong Kong retailers were the bright spot for most of the period as retail sales rebounded strongly year-to-date in 2018 after 3 years of losses from 2014 to 2016, and stabilising in From March onwards, mounting trade tensions between the US and China further took its toll on the Greater China markets, culminating in June when it looked increasingly likely that US-China trade tensions would escalate after talks between both sides broke down. The threatened ban on China communication equipment manufacturer, ZTE from US suppliers also threatened to disrupt global technology supply chains. The trade tensions overshadowed other positive geo-political events such as the initiation of peace talks and de-nuclearisation of the Korean Peninsula. Over the period, Taiwan performed the best, up +1.05%, followed by China, +0.16% and Hong Kong fared the worst, down -0.69%. Within Greater China, Taiwan performed the best given its relative defensive nature with high free cash flows and dividend yield. Within Taiwan, non-tech outperformed the Information Technology sector. The Information Technology sector faced headwinds from weak Apple iphone sales, slowing in China smartphone sales and potential disruption in the tech supply chain following the threatened ban on ZTE. MSCI China ended the half year relatively flat, giving back its gains in January, following headwinds from the government s credit tightening and being at the epicentre of the US trade disputes. MSCI Hong Kong ended slightly down as rising rates and tighter policies hit the property developers. The spill over of the US-China trade disputes and sudden Renminbi depreciation in June also hit Hong Kong retailers and Macau Gaming, which had been the bright spot of the Hong Kong market. Outlook and Fund Strategy China s fundamentals have continued to strengthen in Economic growth is steady with the purchasing manager s index (PMIs) in positive territory, corporate and industrial profits have continue to grow strongly helped by capacity rationalisation, improving utilisation and firmly positive producer price inflation. Property sales are steady and corporate earnings continue to be revised up. However, investors have been spooked by a series of concerns including rising corporate bond defaults, slower than expected May activity data, the accelerated depreciation of the renminbi since mid-june and last but not least, escalating US-China trade tensions as President Trump carries through with his threat to impose trade tariffs and restrict China investments in the US. On the issue of rising bond defaults, we note that this has been an ongoing trend since the beginning of the year as the government continues to rein shadow banking and promote more efficient credit risk pricing. It is part and parcel of China s financial reform path. While the headline news looks alarming, it should be noted that the rate of defaults is just 0.7% of the total corporate bond stock at the end of the first half of 2018 which is far from any indication of systemic risk. May 2018 activity data came in lower than expected; probably reflecting the lagged effects of slower credit creation in the shadow banking system, but this is in the context of strong activity data since the start of the year. Meanwhile, the -3-

6 A) Fund Performance (continued) manufacturing and services PMI are still well above 50. To counter the fall in shadow banking, we expect the authorities to ease policy in a targeted manner, such as cutting the reserve requirement ratio (a 50 basis point cut was announced in June), keeping interbank rates low, and reviving investment projects to support growth. The Renminbi depreciation accelerated in the last week of June, reviving fears of a scenario in August 2015, when the market experienced a sharp correction. However, we do note that the Renminbi still remains one of the strongest currencies year to date in the emerging markets. It has only depreciated 2% vs the US dollar in Ultimately, the Chinese yuan is still a controlled currency and the Chinese central bank has pledged to refrain from using it as an instrument in a trade war. On the US-China trade war, while we assess the growth and earnings impact on the market as muted, a long drawn out trade war and escalating retaliation beyond trade is damaging for both countries and all market participants. Our base case remains that there should not be a full blown trade war, and there should be some negotiated settlement assuming rationality from both sides. Nonetheless, we acknowledge that trade tensions will persist and remain an overhang on the Greater China markets. However we believe much of this has already been priced into the markets. After the recent correction, the MSCI China 1-year forward price to earnings ratio of 11x is trading at close to its 10-year historical mean and close to the levels at early 2016 when economic and corporate earnings were much weaker than now. China A share valuations are even more distressed at a price to earnings ratio of 10x, trading below the early 2016 levels. We have tactically dialed back our overweight call on China to neutral in the context of the current negative sentiment on the US-China trade tensions and emerging markets in general and now hold more cash in the Fund. In China, we continue to favour the cheap cyclicals where we believe stock prices have not kept up with the structural and earnings improvement, such as the materials sector. Capacity rationalisation and supply side discipline have considerably raised profitability in the sector. Demand will be further supported if China increased fiscal stimulus to support the domestic economy should external growth deteriorate due to a trade war. We have reduced our weight in financials and property to neutral given current concerns about the renminbi although we still believe their underlying fundamentals and valuations are attractive. We remain overweight on healthcare which enjoys strong policy support, and are relatively defensive in a scenario of slowing economic growth. We are underweight on technology hardware, which could face supply chain disruption amidst US restrictions in the event of an escalating trade war. We prefer technology software which is relatively immune to such external threats. We are underweight Telecommunication Services, Utilities and Consumer Staples which still see lacklustre growth. We remain overweight on Hong Kong. Hong Kong being more of a developed market should hold up relatively better when emerging markets are under pressure. Within Hong Kong, we continue to favour property landlords over developers and retail which is enjoying a strong recovery year to date We also expect a marked increase in trading turnover with rising Connect flows, an expanded tradeable universe in Hong Kong following MSCI A share inclusion and potential relisting of US American depositary receipts back in China. This would be positive for the Hong Kong Exchange. -4-

7 A) Fund Performance (continued) We also maintain our overweight position in Macau. We expect temporary softness in gross gaming revenues in June and July to subside after the World Cup. We are positive on Macau over the longer term given improved infrastructure connectivity with the mainland, and projected visitor growth from China. We remain underweight on Taiwan, given the headwinds in the Apple supply chain with disappointment in iphonex sales and weak guidance from TSMC. We are underweight on technology now, though we are tactically positioned in some components that are seeing strong demand such as 3-D lens and wafers which are seeing tight supply and resilient demand. We are overweight on non-tech sectors such as Materials, Consumer Staples and Financials. As is frequently the case with emerging markets, we can expect volatile performances and the Greater China markets are no exception. Over the longer term, we believe the Chinese economy is on the right path towards sustainable longer term growth, as it rebalances towards a more consumer and service driven economy. We believe the country also has the financial muscle to cushion the stresses during the transition and other potential external headwinds with their strong balance sheet and many policy tools at their disposal. The question is whether China s reforms will improve corporate profitability and stabilise the growth backdrop in the long run. We believe the prospects for this are good, but the road will be bumpy and execution is key. In the long term, the Greater China region should continue to deliver above average economic growth, underpinned by the emergence of China as a global economic superpower in the years ahead. This will create interesting investment opportunities for many years ahead. -5-

8 B) Investments at fair value and as a percentage of net asset value ( NAV ) as at 30 June 2018 under review classified by i) Country Fair Value (S$) % of NAV China 28,904, Hong Kong 12,538, Macau 1,164, Taiwan 11,821, Portfolio of investments 54,429, Other net assets/(liabilities) 2,338, Total 56,767, ii) Industry Fair Value (S$) % of NAV Consumer Discretionary 4,280, Consumer Staples 803, Energy 1,156, Financials 14,612, Health Care 2,214, Industrials 54, Information Technology 20,896, Materials 4,489, Real Estate 5,157, Telecommunication Services 545, Utilities 219, Portfolio of investments 54,429, Other net assets/(liabilities) 2,338, Total 56,767,

9 B) Investments at fair value and as a percentage of net asset value ( NAV ) as at 30 June 2018 under review classified by (continued) iii) Asset Class Fair Value (S$) % of NAV Quoted Equities 54,429, Other net assets/(liabilities) 2,338, Total 56,767, iv) Credit rating of quoted bonds N/A C) Top Ten Holdings 10 largest holdings as at 30 June 2018 Fair Value (S$) Percentage of total net assets attributable to unitholders % TENCENT HOLDINGS LTD 5,707, ALIBABA GROUP HOLDING LTD 4,806, TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD 4,724, AIA GROUP LTD 3,159, CHINA CONSTRUCTION BANK CORP 2,961, INDUSTRIAL & COMMERCIAL BANK OF CHINA 2,397, PING AN INSURANCE GROUP CO OF CHINA 1,719, LARGAN PRECISION CO LTD 1,606, FORMOSA PLASTICS CORP 1,459, HONG KONG EXCHANGES & CLEARING LTD 1,347,

10 C) Top Ten Holdings (continued) 10 largest holdings as at 30 June 2017 Percentage of total net assets attributable to Fair Value unitholders (S$) % TENCENT HOLDINGS LTD 6,106, ALIBABA GROUP HOLDING LTD 5,431, TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD 5,048, AIA GROUP LTD 3,119, HON HAI PRECISION INDUSTRY CO 2,702, CHINA CONSTRUCTION BANK CORP 2,240, CHINA MOBILE LTD 2,191, BANK OF CHINA LTD 1,938, BOC HONG KONG HOLDINGS LTD 1,581, PING AN INSURANCE GROUP CO OF CHINA 1,470, D) Exposure to derivatives i) Fair value of derivative contracts and as a percentage of NAV as at 30 June 2018 Contract or underlying principal amount Positive fair value % of NAV Negative fair value $ $ $ % of NAV Foreign currency contracts 1,570, * 758 -* * denotes amount less than 0.01% ii) iii) There was a net realised gain of SGD 7,490 on derivative contracts during the financial period from 1 January 2018 to 30 June There was a net unrealised loss of SGD 35 on outstanding derivative contracts marked to market as at 30 June E) Amount and percentage of NAV invested in other schemes as at 30 June 2018 N/A -8-

11 F) Amount and percentage of borrowings to NAV as at 30 June 2018 N/A G) Amount of redemptions and subscriptions for the financial period from 1 January 2018 to 30 June 2018 Total amount of redemptions SGD 12,522,673 Total amount of subscriptions SGD 3,604,497 H) The amount and terms of related-party transactions for the financial period from 1 January 2018 to 30 June 2018 i) As at 30 June 2018, the Fund maintained current accounts with its related parties as follows: State Street Bank and Trust Company, Singapore Branch Cash and bank balances SGD 2,506,021 United Overseas Bank Limited Margin accounts SGD 297,352 ii) Investment in Initial Public Offerings managed by UOB Group N/A iii) As at 30 June 2018, the brokerage income earned by UOB Kay Hian Pte Ltd and United Overseas Bank Limited were 1,791 and 106 respectively. -9-

12 I) Expense ratios $ $ Total operating expenses 1,295,631 1,188,409 Average daily net asset value 64,294,519 68,522,119 Expense ratio 2.02% 1.73% Note: The expense ratio has been computed based on the guidelines laid down by the Investment Management Association of Singapore ( IMAS ). The calculation of the Fund s expense ratio at 30 June 2018 was based on total operating expenses divided by the average net asset value respectively for the financial period. The total operating expenses do not include (where applicable) brokerage and other transaction costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The average net asset value is based on the daily balances. J) Turnover ratios $ $ Lower of total value of purchases or sales 27,884,576 15,008,309 Average daily net assets value 62,659,996 65,656,945 Turnover ratio 44.50% 22.86% Note: The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower of the total value of purchases or sales of the underlying investments divided by the average daily net asset value. K) Any material information that will adversely impact the valuation of the scheme such as contingent liabilities of open contracts N/A L) For schemes which invest more than 30% of their deposited property in another scheme, the following key information on the second-mentioned scheme ( the underlying scheme ) 1 should be disclosed as well i) Top 10 holdings at fair value and as percentage of NAV as at 30 June 2018 and 30 June 2017 N/A ii) Expense ratios for the financial period ended 30 June 2018 and 30 June 2017 N/A -10-

13 L) For schemes which invest more than 30% of their deposited property in another scheme, the following key information on the second-mentioned scheme ( the underlying scheme ) 1 should be disclosed as well (continued) iii) Turnover ratios for the financial period ended 30 June 2018 and 30 June 2017 N/A 1 Where the underlying scheme is managed by a foreign manager which belongs to the same group of companies as, or has a formal arrangement or investment agreement with, the Singapore manager, the above information should be disclosed on the underlying scheme. In other cases, such information on the underlying scheme should be disclosed only if it is readily available to the Singapore manager. M) Soft dollar commissions/arrangements UOB Asset Management has entered into soft dollars arrangements with selected brokers from whom products and services are received from third parties. The products and services relate essentially to computer hardware and software to the extent that they are used to support the investment decision making process, research and advisory services, economic and political analyses, portfolio analyses including performance measurements, market analyses, data and quotation services, all of which are believed to be helpful in the overall discharge of UOB Asset Management s duties to clients. As such services generally benefit all of UOB Asset Management s clients in terms of input into the investment decision making process, the soft credits utilised are not allocated on a specific client basis. The Manager confirms that trades were executed on a best execution basis and there was no churning of trades. N) Where the scheme offers pre-determined payouts, an explanation on the calculation of the actual payouts received by participants and any significant deviation from the pre-determined payouts N/A -11-

14 STATEMENT OF TOTAL RETURN For the half year ended 30 June 2018 (Un-audited) 30 June 30 June $ $ Income Dividends 797, ,570 Interest Total 797, ,570 Less: Expenses Management fee 465, ,685 Trustee fee 10,757 12,215 Audit fee 8,827 8,258 Registrar fee 7,459 7,490 Valuation fee 38,792 40,640 Custody fee 26,166 14,597 Transaction costs 283, ,456 Interest expenses Other expenses 59,738 24,241 Total 900, ,595 Net income/(losses) (102,622) (84,025) Net gains/(losses) on value of investments and financial derivatives Net gains/(losses) on investments 57,110 12,274,175 Net gains/(losses) on financial derivatives 7,455 (1,936) Net foreign exchange gains/(losses) 14,679 (496,560) 79,244 11,775,679 Total return/(deficit) for the period before income tax (23,378) 11,691,654 Less: Income tax (expense)/refund (77,676) 134,931 Total return/(deficit) for the period (101,054) 11,826,

15 STATEMENT OF FINANCIAL POSITION As at 30 June 2018 (Un-audited) 30 June 31 December $ $ Assets Portfolio of investments 54,429,267 65,187,256 Sales awaiting settlement 975,550 - Receivables 433, ,792 Cash and bank balances 2,506, ,980 Margin accounts 297, ,640 Financial derivatives at fair value Total assets 58,641,990 66,361,668 Liabilities Purchases awaiting settlement 1,139, ,662 Payables 733, ,953 Financial derivatives at fair value Total liabilities 1,874, ,615 Equity Net assets attributable to unitholders 56,767,823 65,787,

16 STATEMENT OF MOVEMENTS OF UNITHOLDERS FUNDS For the half year ended 30 June 2018 (Un-audited) 30 June 31 December $ $ Net assets attributable to unitholders at the beginning of the financial period/year 65,787,053 68,152,316 Operations Change in net assets attributable to unitholders resulting from operations (101,054) 19,621,082 Unitholders contributions/(withdrawals) Creation of units 3,604,497 8,046,462 Cancellation of units (12,522,673) (30,032,807) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (8,918,176) (21,986,345) Total increase/(decrease) in net assets attributable to unitholders (9,019,230) (2,365,263) Net assets attributable to unitholders at the end of the financial period/year 56,767,823 65,787,

17 STATEMENT OF PORTFOLIO As at 30 June 2018 (Un-audited) Holdings at 30 June 2018 Fair value at 30 June 2018 $ Percentage of total net assets attributable to unitholders at 30 June 2018 % By Geography - Primary Quoted Equities CHINA AAC TECHNOLOGIES HOLDINGS INC 17, , ALIBABA GROUP HOLDING LTD 19,000 4,806, ANGANG STEEL CO LTD 572, , ANHUI CONCH CEMENT CO LTD 80, , BAIC MOTOR CORP LTD 280, , BAIDU INC 3,400 1,126, BANK OF CHINA LTD 1,180, , CHINA CONSTRUCTION BANK CORP 2,350,000 2,961, CHINA LONGYUAN POWER GROUP CORP 200, , CHINA MERCHANTS BANK CO LTD 140, , CHINA NATIONAL BUILDING MATERIAL CO LTD 392, , CHINA PETROLEUM & CHEMICAL CORP 640, , CHINA RESOURCES CEMENT HOLDING 848,000 1,171, CHINA RESOURCES LAND LTD 136, , COUNTRY GARDEN HOLDINGS CO LTD 205, , COUNTRY GARDEN SERVICES HOLDINGS CO LTD 31,034 54, INDUSTRIAL & COMMERCIAL BANK OF CHINA 2,350,000 2,397, KWG PROPERTY HOLDING LTD 190, , PING AN INSURANCE GROUP CO OF CHINA 137,000 1,719, SHANGHAI PHARMACEUTICALS HOLDING 120, , SHIMAO PROPERTY HOLDINGS LTD 80, , TENCENT HOLDINGS LTD 83,400 5,707, WEIBO CORP 7, ,

18 STATEMENT OF PORTFOLIO As at 30 June 2018 (Un-audited) Holdings at 30 June 2018 Fair value at 30 June 2018 $ Percentage of total net assets attributable to unitholders at 30 June 2018 % By Geography - Primary (continued) Quoted Equities CHINA (continued) YICHANG HEC CHANGJIANG PHARMACEUTICAL CO LTD 120, , TOTAL CHINA 28,904, HONG KONG AIA GROUP LTD 265,000 3,159, CHINA MOBILE LTD 45, , CHINA OVERSEAS LAND & INVESTMENT LTD 180, , CK ASSET HOLDINGS LTD 40, , CNOOC LTD 160, , CSPC PHARMACEUTICAL GROUP LTD 156, , GALAXY ENTERTAINMENT GROUP LTD 41, , HAIER ELECTRONICS GROUP CO LTD 170, , HONG KONG EXCHANGES & CLEARING LTD 32,857 1,347, SA SA INTERNATIONAL HOLDINGS LTD 1,050, , SHANGRI-LA ASIA LTD 240, , SINO BIOPHARMACEUTICAL LTD 138, , SWIRE PROPERTIES LTD 222,000 1,118, WHARF REAL ESTATE INVESTMENT CO LTD 110,000 1,067, TOTAL HONG KONG 12,538,

19 STATEMENT OF PORTFOLIO As at 30 June 2018 (Un-audited) Holdings at 30 June 2018 Fair value at 30 June 2018 $ Percentage of total net assets attributable to unitholders at 30 June 2018 % By Geography - Primary (continued) Quoted Equities MACAU MGM CHINA HOLDINGS LTD 230, , SANDS CHINA LTD 60, , TOTAL MACAU 1,164, TAIWAN CATCHER TECHNOLOGY CO LTD 67,000 1,021, CATHAY FINANCIAL HOLDING CO LTD 330, , FORMOSA PLASTICS CORP 290,000 1,459, FUBON FINANCIAL HOLDING CO LTD 320, , GLOBALWAFERS CO LTD 30, , LARGAN PRECISION CO LTD 8,000 1,606, PRESIDENT CHAIN STORE CORP 52, , TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD 488,000 4,724, TOTAL TAIWAN 11,821, Total Equities 54,429, Portfolio of investments 54,429, Other net assets/(liabilities) 2,338, Net assets attributable to unitholders 56,767,

20 STATEMENT OF PORTFOLIO As at 30 June 2018 (Un-audited) Percentage of total net assets attributable to unitholders at 30 June 2018 % Percentage of total net assets attributable to unitholders at 31 December 2017 % By Geography - Primary (Summary) Quoted Equities China Hong Kong Macau Taiwan Portfolio of investments Other net assets/(liabilities) Net assets attributable to unitholders

21 STATEMENT OF PORTFOLIO As at 30 June 2018 (Un-audited) Fair value at 30 June 2018 $ Percentage of total net assets attributable to unitholders at 30 June 2018 % Percentage of total net assets attributable to unitholders at 31 December 2017 % By Industry - Secondary Quoted Equities Consumer Discretionary 4,280, Consumer Staples 803, Energy 1,156, Financials 14,612, Health Care 2,214, Industrials 54, Information Technology 20,896, Materials 4,489, Real Estate 5,157, Telecommunication Services 545, Utilities 219, Portfolio of investments 54,429, Other net assets/(liabilities) 2,338, Net assets attributable to unitholders 56,767,

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