Cash was king, says Whitechurch’s Willis

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Cash was king, says Whitechurch’s Willis

A decision to hold more cash at the start of June has been hailed as a prescient move by Whitechurch Securities’ investment team after it mitigated market losses seen in recent weeks.

Ben Willis, head of research at the discretionary manager, said the phrase ‘cash is king’ had “certainly rung true for us” after markets globally were hit, largely by the extreme falls seen in the Chinese stockmarket.

“We sold down some selective positions across virtually all our strategies at the beginning of June and held proceeds in cash,” he said.

“At the time, markets and asset classes were looking a little rich, and so we were content to hold cash and await opportunities and/or to time our entry back into markets.”

Mr Willis acknowledged there was “direct exposure” to China in his company’s highest risk strategies and that he and his team would be “putting these positions under close scrutiny in the weeks ahead”.

The Chinese authorities have been trying to halt the precipitous falls in the domestic A-share market for a couple of weeks by implementing several limits on market activities, including banning anyone with a major shareholding in a stock selling their stake.

The market seems to have found its bottom – hitting 3,400 points last week from 5,000 in mid-June – and has continued to rise in recent days.

“The correction in China’s equity markets at the start of July has been severe,” Mr Willis said.

“It is one of the few occasions the Chinese authorities have been behind the curve and their decision to suspend short selling only aggravated matters.”

“In China, the maximum a stock can go down in any one day is 10 per cent before it gets suspended. Once those shares are closed out investors begin selling other assets, and so starts the domino effect.”

Mr Willis said the falls had to be considered within the context of a domestic A-share market that had risen more than 150 per cent in the 12 months to mid-June.

He said he had spoken to one of the managers he holds in his portfolio, Hermes’s Jonathan Pines, for his take on events.

“Jonathan Pines, manager of Hermes Asia ex Japan, believes ‘Chinese shares listed in Hong Kong, which have not experienced the same soaring valuations, are not in a bubble and represent good value as one of the cheapest equity markets in the world’,” Mr Willis said.