The China Fund Inc.

Monthly Commentary - September 30, 2023

Market Environment

Chinese equities underperformed the broader EM and Asian markets in September. The country's economic data continued to disappoint while negative news about the real estate sector re-emerged. On a more optimistic note, the cadence of policy announcements aimed at supporting China's property market and domestic consumption seems to make it clear that the government is intent on getting the economy moving again. In addition, geopolitical engagement between U.S. and Chinese leaders continued with a focus on re-opening lines of communication between the two countries to resolve problematic issues surrounding trade and intellectual property. There is also the possibility of Xi Jinping will be joining President Biden at the Asia Pacific Economic Cooperation forum in November.

Chinese sector returns were mixed in September with energy and health care names outperforming while information technology, consumer discretionary and communication services lagged.

Performance Contributors and Detractors

For the month ending September 30, 2023, China Fund, Inc. returned -4.77% while its benchmark, the MSCI China All Shares Index, returned -2.42%. From a sector perspective, the portfolio's stock selection within consumer staples and allocation to financials contributed the most to relative performance. On the other hand, overweight allocations and stock selections within real estate and consumer discretionary detracted the most from relative performance.

Turning to individual holdings, China's premiere banking franchise, China Merchants Bank that employs a prudent approach and commands good asset quality was the second biggest contributor to absolute performance and the top contributor to relative performance. China Merchants Bank did well given attractive valuations and the bank's ability to continue to provide financial solutions to high net worth individuals. Conversely, property developer CIFI Holdings was the biggest detractor to relative performance. CIFI's stocks only resumed trading after a long suspension and its negative share price performance had an accumulated impact over the time it was suspended.

Outlook

China continues to be grinding its way through a slow economic recovery with continues challenges including a weak property market, weak global demand and weak business confidence. While the government has not offered any bazooka stimulus, more support for the property market was seen in throughout the quarter ending in September. We believe the government continues to be in a position to support its economy further if needed. Looking into the final quarter of the year, it is hard to see a major recovery in economic growth although comparables will be more favorable. We look for the bottoming of the property market and increased efforts to boost business confidence. All in, things are not collapsing but we are mindful that major catalysts for recovery remain at bay given all of the above, and a still challenging geopolitical environment.

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