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Growing Pains for China’s Stock Market
I spoke with Andy Rothman, market strategist at
Matthews Asia, about the wild moves in China’s
A-shares market.
Russ Kinnel
Andy, we’ve seen China’s stock market
this year have a tremendous rally, and then it sold off,
essentially giving back its gains for the year, which
really isn’t that big of a deal. You see that all the time
in markets. But what’s interesting to me is China’s
reaction has been very strong. They are trying a lot of
different measures to prop the stock market up. So,
I’m kind of curious about why you think they are doing
that. Do you think the measures are effective?
Andy
Rothman
It’s interesting because, at this point,
the measures have been effective in stabilizing
things, so the China markets are actually not doing
too poorly. If we look at the close of the market
on the July
14
, the main domestic index, the A-share
Shanghai Composite Index, was actually up
21%
from the start of the year and up
90%
from a year ago.
The
MSCI
China Index, which is more relevant to
American investors because it looks at Hong Kong,
that’s still up over
4%
, year to date, and over
10%
from a year ago. So, that isn’t quite the crash that
some of the headlines make it out to be.
RK
No, it isn’t. One of the unusual aspects, I’ve
noticed, of the market has been that hundreds
or maybe over a thousand stocks in China have
suspended trading. Can you tell us a little bit
about why that is and when you might guess they
will resume trading?
AR
Let me answer that by taking a step back first
and saying that stock markets in China are pretty
recent. They’ve really only been around in a serious
form for just over a couple of decades, and it’s still
a pretty amateurish operation. They really panicked
Fund Manager Changes
Fund News
American Funds Growth Fund of America AGTHX
Impact: Negative Date: 07-21-15
Manager Jim Rothenberg died of a heart attack at age 69. Besides serving as a portfolio manager, Rothenberg
was also chairman of Capital Group. Tim Armour was named to replace him as chairman. No replacement has
been named on the portfolio management side.
|
Our Take: This is sad news for Capital Group as Rothenberg
was a valued leader. From a purely investment perspective, the change is more modest as Rothenberg was
one of 12 portfolio managers on the fund, each of whom operates independently. It’s very rare that a manager
change affects our thesis for an American Fund, and it doesn’t here.
Fidelity Puritan FPURX
Impact: Negative
Date: 07-27-15
Investment-grade-bond manager Pramod Alturi has left Fidelity. Michael Plage has taken his place. Plage
has managed Fidelity Corporate Bond FCBFX since 2010. Our Take: Alturi was a bit more experienced than
Plage, so it is a negative. However, the process won’t change, and Fidelity’s bond portfolios are very much a
team effort. In addition, the investment-grade portion of the fund is typically about one fourth of the fund.
Matthews China MCHFX and Matthews Pacific Tiger MAPTX
Impact: Negative Date: 07-01-15
Richard Gao has stepped down from his roles as the lead manager on Matthews China and as a comanager
on Matthews Pacific Tiger. Comanager Andrew Mattock will take over on Matthews China, and Sharat Shroff
will remain lead manager on Matthews Pacific Tiger.
|
Our Take: We have lowered our rating on Matthews
China to
´
from Silver but maintained Matthews Pacific Tiger MAPTX at
Œ
. Andrew Mattock is a
seasoned investor, but he only joined Matthews this year. Sharat Shroff is an established and proven skipper
at Matthews Pacific Tiger.
Perkins Mid Cap Value JMCVX
Impact: Negative
Date: 04-05-15
Comanager Jeff Kautz resigned. Kevin Preloger, who was named comanager in April 2013, remains and has
been joined by Justin Tugman of Perkins Small Cap Value JSCVX.
|
Our Take: The fund has been trying to
get back on track after several years of underwhelming performance. The fact that its five-year results aren’t
up to par isn’t surprising or disappointing given the fund’s relatively conservative process, but weak stock-
picking is more cause for concern. The loss of a long-tenured manager is disappointing but not insurmountable.
Risk-adjusted results since inception remain strong. However, the departure, coupled with the fund’s stock-
picking woes, is enough to move this fund’s Morningstar Analyst Rating to
´
from Silver.
T. Rowe Price Growth & Income PRGIX
Impact: Neutral
Date: 06-01-15
Jeff Rottinghaus took over for Thomas Huber. Huber remains at T. Rowe Price Dividend Growth PRDGX.
|
Our Take: Huber has done a fine job here and at T. Rowe Price Dividend Growth, but Rottinghaus has a solid
five-year record at T. Rowe Price U.S. Large-Cap Core TRULX. There, he has produced five-year returns of
17.3% annualized versus 17.04% for the S&P 500 and 16.45% for the large-blend category. However, that fund
has only $116 million in assets, so Rottinghaus now has more on his plate with this $1.5 billion fund.
Vanguard Convertible Securities VCVSX
Impact: Negative Date: 06-01-15
Veteran manager Larry Keele has stepped down and was replaced by Stuart Spangler.
|
Our Take: Oaktree is
an excellent firm, so we remain confident in the fund, but it’s still a blow to lose Keele, who has built a great
record here. We lowered our rating to
´
.
Weitz Value WVALX
Impact: Negative Date: 12-31-15
Wally Weitz is stepping down from management responsibilities here. However, he will remain manager at
Weitz Partners Value WPVLX and Weitz Hickory WEHIX. Comanagers Brad Hinton and Dave Perkins will take
over his responsibilities.
|
Our Take: Weitz’s departure from the fund is a loss, but he’s been working on the
transition for years, and we feel good about Hinton and Perkins. We are maintaining our rating of
•
on
the fund.