8.5.2019 Pasi Havia

HCP Quant 4/2019 -0.47% | China, China, and China

HCP Quant 3/2019 Valuation Metrics and Allocation | The Performance Potential of Value Stocks
HCP Quant 5/2019 -11.59% | The Work of a Portfolio Manager

April went well for HCP Quant until at the end of the month when China’s stock markets turned downwards. China’s Shenzhen Stock Exchange Composite index decreased 3.74% in euros. The Shenzhen Stock Exchange Small & Medium Enterprises index measuring small and mid-sized companies decreased 5.54% in euros. HCP Quant’s return was -0.47% as pressured by Chinese companies.

In the United States and Europe markets did better. The S&P 500 Total Return index rose 4.09% in euros, which is why the fund’s benchmark index MSCI ACWI SMID Value Total Return pushed ahead by +2.65%. The S&P Europe 350 Total Return index measuring Europe’s stock markets also developed well in April and rose 3.82%.

The prospect of a trade war between China and the United States has colored the current week. Stock markets fell yesterday globally as a result of President Trump surprisingly tweeting over the weekend about raising and widening tariffs against Chinese on Friday. Naturally, markets came down especially strongly in China. It remains to be seen if this is just a part of Trump’s strategy to negotiate a better agreement between the two countries. China’s immediate response to the threat was to march the central bank to the arena. In either case the sparring between the countries continues. I believe this week to be especially sensitive for Chinese stocks. Before long I trust that the countries will reach some kind of agreement and the worries concerning tariffs to move away from the present focus.

On a slightly longer time horizon, Chinese stocks are supported by several index changes, which will bring new capital to China’s stock markets. The first changes in indices will happen now in May, but the largest share is coming over the summer and autumn. For small and mid-sized companies, the additions will occur in autumn, which is more relevant for the HCP Quant fund. I wrote more information about the coming changes in February’s investor letter. China’s central bank is clearly prepared to stimulate markets more when needed. When all these things are added up with my belief that there will be a trade agreement between the US and China, markets look brighter to me than present threats, which most investors seem to focus on currently.

Throughout history, valuations at the time of investing have been meaningful for long-term returns. China’s valuations are low. Chinese stocks’ return expectation is around nine percent per annum, when American stocks’ return expectation is below four. China’s return potential is over double that of the US!


We held HCP’s funds’ unitholders’ meeting at the end of April. At the meeting, I discussed my thoughts concerning valuations in markets, China, return expectations, value and growth investing, and of course how the HCP Quant fund has done. You can download the presentation from this link (in Finnish). Our CEO and portfolio manager of the multi-strategy HCP Black fund Tommi Kemppainen gave an illustrative presentation about diversification across different asset classes (available on YouTube in Finnish with English subtitles). The portfolio manager of the HCP Focus fund Ernst Grönblom gave a presentation that can be downloaded from this link (in Finnish).

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Wishing you a warm early summer,
Pasi Havia
HCP Quant portfolio manager

“The desire to perform all the time is usually a barrier to performing over time.”
– Robert Olstein

(This text is a translation of the Finnish-language HCP Quant investor letter.)

HCP Quant 3/2019 Valuation Metrics and Allocation | The Performance Potential of Value Stocks
HCP Quant 5/2019 -11.59% | The Work of a Portfolio Manager

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