Monthly Commentary - January 2021

Monthly Commentary - January 2021


Chinese equities led emerging markets higher in January despite the worst wave of Covid-19 cases in China since the initial breakout of the pandemic. Health officials tightened social distancing measures and reinstated some locally based lockdown measures and travel bans. In addition, local government officials have encouraged migrant workers not to travel home during the February Lunar New Year holiday. Market participants expect the Chinese government to regain swift control of the virus, minimizing social and economic impacts. Short-term interbank rates surged to their highest levels in more than two years late January prompting speculation that the People's Bank of China is ready to tighten monetary policy. Worries faded quickly however as the regulator hinted that movements were an unintended consequence of the recent normalization of policy.


For the month ending January 31, 2021, the Fund returned 7.36%, while its benchmark, the MSCI China All Shares Index, returned 6.28%.
From a sector perspective, the Fund's holdings in information technology contributed to relative performance, while holdings in consumer discretionary detracted. A contributor among individual stocks was software provider Weimob. The company serves merchants using Tencent's WeChat Mall, with a focus on small and medium-size enterprises (SMEs) that are trying to digitize their operations. Many SMEs are increasingly willing to embrace software solutions to increase productivity. The rise in online shopping and delivery due to the pandemic contributed to demand for Weimob's software solutions.

A detractor among individual stocks was Xinyi Glass. The company manufactures glass for solar panels, as well as float glass, which gets refined into architectural glass. Xinyi's vertically integrated business model benefits from growing demand for many different types of glass in China. In terms of solar panels, demand for solar glass is growing, as solar energy prices in China become more competitive with energy prices associated with fossil fuels. The company's stock price took a breather in January following strong gains in 2020, but we continue to like the company's long-term prospects.


Looking ahead, we expect a continued resiliency in terms of earnings recovery, as the macro environment continues to rebound from the depths of the COVID lockdown last year. The central bank reiterated its commitment to maintaining stability, avoiding any sharp shifts in policy, to support continued economic growth. Even though Chinese equity valuations seem elevated versus their own history, consensus estimates for year over year earnings have also increased significantly in tandem with estimated higher GDP growth. We expect domestic consumption and services to continue driving China's economic growth. Expansion of consumer buying power in lower-tier cities will remain a key theme we are following.

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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