Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Claire Liang. She is an analyst at Morningstar in Shenzhen. Hello.
Claire Liang: Hello, Holly.
Black: So, Claire, you've been keeping a close eye on the markets. We're at the halfway point of this year. How have the Chinese stock markets and Chinese funds held up amid the Covid crisis?
Liang: Yes. Well, Chinese stock markets have performed actually relatively well so far in this year's difficult environment. The domestic stock markets had also been hit by the virus outbreak in the first quarter and the two main both in Shanghai and Shenzhen fell by around 10% and 4% respectively. But this is better than the other major stock markets in the world as effective containment of the virus in China and government's stimulus plan upheld investors' confidence and the market sentiment. Both markets started to rebound in April as the economy came to recover. And by last Friday, June 19th, the Shanghai Stock Exchange has almost regained its lost territory while Shenzhen was up 12% year-to-date.
Black: Okay. Well, I think something that we've seen from all of this is there are real winners and losers. So, are there some sectors or fund types that are doing particularly well at the moment?
Liang: Yes. So, the new economy sector such as information technology, healthcare and consumers have generally outperformed the broad market this year and among them the healthcare sector is no doubt the best performing sector so far, up by over 30% by last Friday. As a result, you can imagine that the healthcare sector funds had the strongest performance among all types of equity-focused funds in China and the category collectively returned by over 40% year-to-date. Part of the reason is that the Covid-19 crisis has emerged increased focus on public health and investors expected more R&D investments and government spending in this area going forward. Some biotech firms and medical equipment providers were also some of the key beneficiaries from the virus outbreak.
Black: Okay. And what about the other end of the spectrum? Which areas have been hit the hardest?
Liang: Well, most of the traditional sectors such as energy, real estate, financials and the utilities underperformed the broad market which caused value-oriented equity strategies struggle compared to their growth peers. The energy sector was hit the hardest down by nearly 20% year-to-date as overall demand fell because of reduced travel and manufacturing resulting from the Covid-19 outbreak. Banks were also hit hard as investors concerned that the weaker economy and the lower interest rates would put pressure on banks' profitability and asset quality.
Black: Okay. So, I think people are still quite concerned at the moment about a potential second wave of the virus and also how well economies can recover. What is your outlook for the region for the rest of this year and beyond?
Liang: Yes. These are all valid concerns. But from our interview with the China onshore portfolio managers, most of them actually still hold positive views on China's domestic stock markets and they expected the economy and corporate earnings continue to recover with more monetary and physical stimulus measures to be implemented. On the other side, they also noted that weak external demand as well as U.S.-China tensions could be the major downside risks for the rest of the year. In terms of the sector opportunities, healthcare, new energy vehicles and new infrastructure related things such as 5G and cloud computing were among the top investment themes preferred by the onshore portfolio managers.
Black: Fantastic. Claire, thank you so much for your time. For Morningstar, I'm Holly Black.
