Monthly Commentary - December 2020

Monthly Commentary - December 2020


Chinese equities rose in December but lagged broader emerging and developed markets. Sentiment was driven by positive news around China’s continued economic recovery and low Covid-19 cases despite headlines around additional U.S. sanctions and the impact of new reforms on internet companies. The Trump administration continued to pressure Chinese companies in December, threatening to broaden the scope of an executive order released in November to ban United States persons from investing in securities issued by certain companies (and potentially their affiliates) designated as a “Communist Chinese military company.” We do not expect the executive order to have a material impact on Chinese markets broadly as these companies represent a very small percentage of Chinese market capitalization and the overwhelming majority of these securities are held by non-U.S. investors.


For the month ending December 31, 2020, the Fund returned 5.59%, while its benchmark, the MSCI China All Shares Index, returned 4.16%.

From a sector perspective, the Fund’s holdings in financials contributed to relative performance, while Fund’s holdings in consumer staples detracted. A contributor among individual stocks was video content company Bilibili. The company, which caters to young viewers, attracted new users as the pandemic accelerated demand for online entertainment and social media interaction. We see Bilibili emerging as a new, distinct social media platform in its own right. With a growing user base and distinctive value proposition for its users, we find the company to have attractive long-term prospects.

A detractor among individual stocks was Chinese liquor company Kweichow Moutai. While sentiment was recently weak around the stock, we continue to see Kweichow Moutai as a premier national brand in China with tremendous brand equity. Kweichow Moutai continues to streamline its distributor network, while conducting more direct sales. We see opportunity for the company to expand margins.


Looking ahead, China seems well positioned for continued stability as monetary aggregates have been balanced for several months. Additionally, China’s rebounding economy and solid mid-teens consensus earnings growth should support current valuations. The newly released five-year plan could support businesses benefiting from the “dual-circulation” announcement focused on domestic demand and self-sufficiency in key areas of technology, innovation, health care and the digitalization of the economy.

While additional market volatility could lie ahead, we believe the long-term prospects for Chinese companies with strong competitive positions remain attractive. The pandemic has enabled some strong players to become even stronger and gain market share. And periods of market disruption have historically spurred new opportunities for innovation and business investment.

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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