Monthly Commentary - February 2021

Monthly Commentary - February 2021


Chinese equities fell slightly in February after posting the strongest regional returns in January. China’s domestic recovery continued but uncertain economic prospects surrounding the Lunar New Year holidays dampened sentiment. The rally of imported commodities and the sudden rise in U.S. Treasury yields, along with the Hong Kong stamp duty hike and elevated valuations hurt growth-oriented internet and consumer large caps. Going into March, all eyes are on the annual National People’s Congress meetings. Sessions are expected to focus on long-term initiatives such as the reduction in carbon emissions, and the decreased reliance on global supply chains by increasing domestic supply chains. In addition, the meeting is expected to set a minimum growth target for 2021 as well as little change in policy rates and monetary supply growth rates.


For the month ending February 28, 2021, the Fund returned -0.79%, while its benchmark, the MSCI China All Shares Index, returned -1.03%.

From a sector perspective, stock selection in health care detracted while stock selection in consumer discretionary contributed to relative performance.

A detractor 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. While the share price performance was weak in February, we continue to like the company’s long-term prospects.

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.


Following a V-shaped recovery in 2020, we expect growth to normalize and hold steady in 2021. With COVID under control in China, daily life in China is largely back to normal. Retail sales are picking up, providing ballast for China’s domestic economy. Employment in the private sector remains healthy, with an emphasis on services and consumption. Looking ahead, we expect the Chinese consumer to continue to drive long-term growth. The depth and diversity of the opportunity set in China continues to expand, with a notable uptick in IPOs over the past 12 months. Key themes we are following include technology upgrades, health and wellness trends, services that enhance quality of life and premium consumer goods. We continue to look for attractive long-term growth opportunities driven by the Chinese consumer.

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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