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Market Perspective Summary

    China A-Share Value: June 2011

    Bucking a trend of general weakness in the broader Chinese and Asian equity markets, China A shares rose in June as worries about rampant inflation and economic slowdown eased somewhat. Having sharply lagged global markets in previous months, the A-share market, particularly cyclical companies, benefited from investors’ pent-up demand. The MSCI China A Share Index rose 2.8% in US dollar terms.

    Sector returns were consistent with a climate of a rallying market. Cyclical sectors—such as materials and energy—outperformed, reversing their recent declines. Defensive sectors, such as telecommunications and utilities, lagged.

    The portfolio marginally underperformed the benchmark. Our security selection was modestly positive, but our sector exposures—such as underweights in the strongly recovering industrials and materials sectors—slightly detracted from performance. Our overweight in financials also detracted, but our stock selection within that sector—specifically real-estate names—buoyed performance.

    The uncertainty that has affected markets is unlikely to lift immediately. But we believe that a soft-landing for China’s economy can be achieved and inflationary pressures brought under control during the second half of this year. In the meantime, we will continue to take advantage of investor anxiety to accumulate stocks that have become compellingly priced on account of undue pessimism.

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