China equities declined, following weak overseas markets amid rising U.S. rates and inflation expectations. The official PMI came in
softer than expected. However, overall consumption related indicators during the Chinese New Year holidays suggest continued solid
growth. Technology outperformed with lowered expectation and gradual improvement in outlook, along with sector rotations from
cyclicals to growth names. There is increasing focus on the upcoming third plenum of the 19th Party Congress, with rising expectations
of more policy announcements to address de-leveraging and various reforms. Offshore China equities lagged onshore with Southbound
Connect, a key source of liquidity in the past two years, turning a net seller post the Chinese New Year holidays.
The portfolio outperformed the benchmark. Positive stock selection contributed to returns, while sector allocation had little impact overall.
Key holdings in the Apple supply chain recovered this month to contribute to performance. The overweights in AAC Technologies, Han’s
Laser and Luxshare Precision added value. AAC Technologies should remain well positioned to derive earnings from its acoustics and
haptics core businesses, with RF mechanical and optical lens businesses to boost earnings further. Han’s Laser is a beneficiary of
import substitution as well as growing underlying demand, driven by penetration and new applications, of laser equipment.
We have become incrementally more positive on Luxshare Precision given its expanding product portfolios in smartphone components and
accessories, the latest of which includes entry into the camera module space. Our structural growth holdings elsewhere also added
value. Focus Media rebounded on continued strength in advertising. Hangzhou Hikvision reported 25-30% top- and bottom- line growth.
Nexteer Automotive benefitted from a rebound in auto sales.