Monthly Commentary - October 2020

Monthly Commentary - October 2020


Chinese equity prices made gains in October as investors priced in lower geopolitical risk premium. In the month leading up to the U.S. presidential election, investors expected that a potential Biden victory and new administration in the White House could mark an improvement in U.S.-China relations. Regardless, China’s post-COVID recovery continues. While industrial sectors are flattening, consumption is rebounding with reasonable results being reported from the Golden Week of holiday shopping and tourism. Chinese policymakers met in late October to discuss the next “five year plan.” The focus was on further development of the domestic economy while trying to achieve middle-income status by 2035.


For the month ending October 31, 2020, the Fund returned 4.93%, while its benchmark, the MSCI China All Shares Index, returned 4.73%. From a sector perspective, the Fund’s holdings in communication services contributed to relative performance, while Fund’s holdings in real estate and financials detracted.

A contributor among individual stocks was Estun Automation Co., China’s leading robot manufacturer with strong technical capabilities and an 80% overall rate in component self-sufficiency. Amid recovery in the industrial automation industry in China, the company has seen a rebound in orders, creating positive sentiment and leading to stock prices gains in the month. We believe local companies, through price competitiveness and improving quality, stand to gain market share against foreign competitors in this industry, where foreigners still hold the lion’s share of the market.

A detractor among individual stocks was Lepu Medical Technology, a pharmaceutical and medical device company whose core business includes medical stents. General procurement order (GPO) trends continue to pressure product pricing among the stents industry as a whole in China. At the same time, Lepu is focused on upgrading their product portfolio to areas such as biodegradable stents, which are less affected by price cuts. Longer term, we expect companies with the strong technology will survive. Lepu continues to upgrade its portfolio and we remain constructive on its prospects.


Domestic travel within China continues to pick up, adding another pillar of support for China’s economic recovery. Public health and safety measure remain effective, keeping the COVID pandemic in check. The government’s five-year plan includes a renewed focus on energy independence, which should encourage further investment in renewable energy sources, including solar power. The continued opening of China’s financial markets to foreign investment remains on a slow, but steady path forward. A new presidential administration in Washington won’t resolve all U.S.-China trade issues, but may result in a more collaborative approach to diplomacy and engagement. Market participants generally favor predictability, so a more unified U.S. foreign policy.

Source: Brown Brothers Harriman & Co. Source for index data: MSCI

Past performance is not a guide to future returns. Investment returns are historical and do not guarantee future results. Investment returns reflect changes in net asset value and market price per share during each period and assumes that dividends and capital gains distributions, if any, were reinvested. The net asset value (NAV) percentages are not an indication of the performance of a shareholder›s investment in the Fund, which is based on market price. NAV performance includes the deduction of management fees and other expenses.

The views and opinions in this commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned. Investors should consider the investment objectives, risks, charges and expenses of any mutual fund carefully before investing. This and other information is contained in the Fund's annual and semiannual reports, proxy statement and other Fund information, which may be obtained by contacting your financial advisor or reviewing this website.

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information.

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