The actual impact of a Trump victory is still a question mark, but Mok told FSA he is most concerned about US dollar strength.
During the presidential campaign, Trump suggested slashing the corporate tax rate to 15% from 35%. If that takes place, it would mean a stronger US dollar, “traditionally not very good for Asia”, Mok said.
Another concern is the increasing trend toward protectionism. Trump opposed the Trans-Pacific Partnership agreement, a trade agreement involving 12 countries but yet to be approved by the US Congress. He also proposed raising tariffs on China and Mexico.
Hence Mok’s portfolio is underweight China exporters. He has added exposure to the construction and materials sectors, in particular to cement companies. Sectors that are more policy-driven, domestic-focused and less affected by external economies or US policies should outperform, Mok said.
“Chinese construction companies can also focus on regional trade, examples being the recent high speed railway projects in Malaysia and the Philippines.”
Shenzhen link
The fund also made use of the one-day panic for some bottom-fishing in Hong Kong equities, he added. Cash holdings dropped from the highest level at nearly 10% in September to roughly 5% as of yesterday. The benchmark Hang Seng Index fell about 3% on Wednesday after the election results came out.
Meanwhile, since July Mok has been positioning the portfolio for the upcoming launch of Shenzhen-Hong Kong Stock Connect, he said. H-shares are in favor as onshore stocks have high valuations. The portfolio only has about 8% holdings in A-shares.
Claudia Ching, senior equity analyst for the fund, pointed out two sectors within the small to mid-cap H-share space that might stand out. “Some tourism names, such as aircraft leasing, has no counterparts in the A-share market, with good growth and reasonable valuations. We also favor some hardware names in the IT sector.”
BOC Aviation, one of the few aircraft leasing companies listed in Hong Kong, is the top holding of the fund, which accounts for 5.32% as of October.
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The fund’s performance as compared to the MSCI China Index, which has the same composition as the benchmark MSCI DAILY TR Net China Index, according to FE Analytics:
