Monthly Commentary - March 2021

Monthly Commentary - March 2021


Chinese equities were weak during March. Reasonably strong economic data created speculation about the need for policy tightening. An addition, Chinese stocks were under pressure following a disastrous meeting in Alaska between U.S. Secretary of State Anthony Blinken and his Chinese counterparts. Market optimism of improved U.S.-China relations with the Biden administration quickly evaporated as each side traded jabs in favor of populist grandstanding. Last year’s 2020 high flyers within the information technology, consumer staples and discretionary sectors took a breather while cyclically oriented, “recovery” names within energy, real estate, financials and utilities outperformed. Overall, the sell-off in Chinese shares seems technical as opposed to fundamentally driven.

Earnings growth expectations continue to reflect optimism in corporate profits supporting current valuations. Price weakness seems to reflect more of a herd mentality of local Chinese retail investors trying to lock-in 2020 gains and to take advantage of political headlines and bilateral tensions. Chinese economic growth prospects and data pointillustrate robust recovery, but not enough to spur central bank policy tightening beyond what markets have already experienced. Rotation from growth to cyclical names could continue as industrial profits are expected to surge year-over-year. That said, without substantial tightening of liquidity conditions, we believe stock-specific growth names within discretionary, health care, communication services and staples can resume their climb as prices have corrected meaningfully since mid-February.


For the month ending March 31, 2021, the Fund returned -4.86%, while its benchmark, the MSCI China All Shares Index, returned -6.35%. From a sector perspective, stock selection in the consumer discretionary and financials sectors contributed to relative performance. In contrast, the Fund’s holdings in the information technology and industrials sectors were detractors to relative performance.

A contributor among individual stocks was China Yongda Automobiles Services Holdings, a luxury auto dealer carrying brands such as BMW and Porsche. Yongda is also seeking to expand and broaden its product portfolio to include other strong performing luxury brands such as Mercedes and Lexus. Overall luxury brands are still growing strongly in China, and the company continues to have the opportunity to deliver more aftermarket sales to a growing base of luxury cars. Yongda also trades at an attractive valuation in our view.

A detractor 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. While share prices were weak in March given profit taking after a strong performance in the beginning of the year, we continue to like the company’s long-term prospects.


We remain optimistic about both the near-term and long-term growth prospects in China. Keeping the coronavirus under control is key to maintaining China’s V-shaped economic recovery. While China is only in the very early stages of its vaccination program, its strict border controls and data-driven approach to minimizing outbreaks remains highly successful. China’s approach to combatting the virus has been more effective than any other large economy. Because COVID is largely under control in China, people have been able to resume a normal life and consumption is rising. We also see encouraging trends in auto sales, restaurants and dining, and tourism.

Over the long term, we expect that China’s growth will continue to be driven by growing domestic consumption. 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 that we are following include technology upgrades, health and wellness trends, services that enhance quality of life and premium consumer goods. The team continues 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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