Investing involves risk, including the possible loss of principal.
The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information and can be obtained by visiting www.gafunds.com. Read it and consider it carefully before investing.
In matters of dividends, quality matters. The Guinness Atkinson Dividend Builder Fund has, from inception, maintained a focus on quality. Our view is that quality companies are more likely to grow their dividend and, importantly, quality companies have a greater chance to maintain their dividends when times get difficult. In this bulletin, we take a look at the Dividend Builder Fund’s holdings (as of April 30, 2020) and examine whether they have maintained their quality during the COVID-19 pandemic.
Click here to download the complete bulletin “Quality Dividends Matter”
Flurry Wright, one of our London-based colleagues, recently took a trip to China and visited the northern city of Datong in Shanxi Province, an area that holds one third of all China’s coal reserves. The city is far removed from the current trade spat but is playing a full part in the story of China’s economic and social transformation whose path we believe is exorable. Her observations on her city visit illustrate why China’s investment story is not a passing fad. Miles away from President Trump’s world of fake news and the Mar a Lago golf club, the steady lifestyle upgrading in China rolls on.
At the beginning of July, the US fired its opening salvo and introduced a 25% tariff on $34bn of Chinese imports, with tariffs on another $16bn due to follow. The US is now planning to impose a 10% tariff on $200bn worth of Chinese imports with the potential of more to come. Many are now becoming concerned over the impact of these tariffs on not just the Chinese and US economy but also the impact on global growth.
Click here to download the complete bulletin “The Reality of Tariffs”
Investors should be thinking about energy equity exposure because:
- Energy equities have materially underperformed global equity markets over the last three years as a result of low oil prices and low energy company profitability.
- OPEC’s commitment to rebalancing the oil market, combined with strong global oil demand growth, have driven oil prices up. Venezuelan supply issues, the renewal of Iranian sanctions and other Middle East tensions are forcing prices higher. US shale oil supply growing well again but suffering infrastructure constraints.
- Energy stocks have not moved much yet but we believe that they will rise – in tandem with long dated WTI oil prices rising to $60 or $70/bl.
On Wednesday, May 8th, President Trump announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA). Read our take on how this may or may not impact oil prices.
After such a strong run this year in stock markets around the world, investors are concerned that something nasty is about to happen. Unless there is a strong view about the dollar, interest rates, or a global price shock then the question comes down to valuation. Have markets become too expensive and therefore should we retreat a little before year end?
To us, this looks like a broader move in sentiment to cut back on positions that have done well, i.e. a question of valuation and profit-taking. This does not appear to be because of any fundamental change to market earnings or economic conditions.
We think that Asian markets never got expensive. Valuations have come up from multi-year lows (which also depresses the 10-year average, making that comparison lower than it might otherwise be) and are supported by strong earnings growth forecasts which in turn are supported by strong profit growth already reported.
What follows is a quick review of what we think is relevant.
Click here to download the complete bulletin “Asian Markets Retreat – Our View”
Is inclusion into MSCI benchmarks a game changer for China A shares? Yes and No.
The Chinese stock markets are big. The combined market capitalization as at June 23, 2017 of the major Chinese stock exchanges in Shanghai and Shenzhen amounts to almost $7.75 trillion which compares to the New York Stock Exchange capitalization of $22 trillion, NASDAQ $9.4 trillion, Tokyo $5.4 trillion and London at $3.18 trillion. China’s stock markets are also active with turnover on that day of $37 billion which compares with $67 billion in New York and $49 billion on Nasdaq and $6.5 billion in London.
All of this makes it no surprise that at some point China’s domestic shares would one day be included in international benchmarks. China’s economy is the second largest in the world1; it does more trade in goods ($3.8 trillion a year) than any other country2; its market for passenger cars is nearly 25 million a year3 – GM sells 4 out of every 10 cars it produces to China4.
The notion that Chinese companies should be kept out of international benchmarks indefinitely was clearly not likely.
What has MSCI done?
MSCI has now taken the view that Chinese stocks are important enough and that access to them has been made easy enough for ‘index-linked investment vehicles’ to include them in their index calculations from May 2018. There are however remaining difficulties that mean that there are some quite specific criteria attached.
Click here to download the complete bulletin “China A shares into MSCI benchmarks”
1 World Bank data
2 China Customs data & Bloomberg
3 24,479,768 cars in the 12 months to May 31, 2017. China Automotive Information Net
4 Source: General Motors
The Chinese leadership is now promising “to make our skies blue again” in a popular move to address an issue that has given rise to public protests across China against the industrial smog that blights so many cities. The solution to a pressing economic problem is now linked to an emotive popular issue. The pollution is the result of coal burning by heavy industry, the very sector that is weighed down by excess capacity and debt, which threaten China’s economic survival. The government needs this sector to cut debt and capacity but they have encountered resistance from local governments and vested interests. Environmental reasons have been used before by central government as a tool to push through change. Now they appear to be leading with it.
The Organization of Petroleum Exporting Countries (OPEC) concluded their formal meeting on Wednesday 30th November 2016 with an agreement to cut production levels. This ratifies the ‘Algiers Accord’ which took place on 28th September, when planned cuts were first announced. The announced cut is a clear positive for near term oil prices and will tighten the oil market in 2017.
Click here to download the complete bulletin OPEC Announces First Production in 8 Years.
What has been announced?
OPEC have opted for a new production limit of 32.5million (m) barrels per day (b/day), representing the first action from the group since November 2014 and the first quota cut since 2008/09. The ‘referenced’ OPEC production, for October 2016, and used as a starting point for the cuts, was around 33.7m b/day, so the announcement represents a cut of 1.2m b/day (all numbers for OPEC-14 including Gabon). This ratifies the ‘Algiers Accord’ which took place on 28th September, when planned cuts were first announced. There is also an understanding that non-OPEC, including Russia, will cut production by 0.6m b/day, which would bring the total reduction to 1.8m b/day – well in excess of most expectations in the lead up to the meeting.
The announcement amounts then to a 5% cut for all members except for 1) Libya and Nigeria, recognising their unusually depressed levels of production due to unrest, and 2) Iran, recognising its journey back to normalised production post the lifting of sanctions in January 2016. Indonesia has been suspended from the group since, as a net importer of oil, it chose not to participate.
The agreed cuts are effective from 1st January 2017, and will be kept in place initially for six months, extendable for another six months depending on how the oil market evolves.
Unexpectedly, the OPEC agreement also contains official reference to non-OPEC production: “This agreement has been reached following extensive consultations and understanding reached with key non-OPEC countries, including the Russian Federation that they contribute by a reduction of 600k b/day production”. It is understood that Russia has agreed to shoulder 300k b/day of cuts, while other unnamed non-OPEC countries will share the other 300,000 b/day.
OPEC have also taken the unusual step of establishing a ‘Ministerial Monitoring Committee”,
including OPEC and non-OPEC members, to monitor implementation and compliance with the
agreement. We think this gives an indication of strong intent to see the cuts through.
To see the OPEC production cuts agreed by each member country and implications of the cut, read our bulletin OPEC Announces First Production Cut in 8 Years.