Monthly Commentary - April 2021

Monthly Commentary - April 2021


Chinese equities were slightly higher in April after a volatile first quarter. The sell-off in Chinese shares late in the first quarter seemed technical in nature in our view, as opposed to fundamentally driven. Earnings growth expectations continue to reflect optimism in corporate profits supporting current valuations. Chinese year-over-year economic growth may have peaked reflecting the end of the low base effects experienced early in 2020. Monetary policy already reflects an economy having largely recovered whereby the government may be less accommodative going forward yet not ready to tighten. Regulatory pressures broadened within the internet-based consumer and IT sectors. Meanwhile, U.S.-China trade relations have been somewhat quieter in the media headlines during the month of April, following a contentious bi-lateral meeting in Alaska held in March.


For the month ending April 30, 2021, the Fund returned 1.96%, while its benchmark, the MSCI China All Shares Index, returned 2.32%. From a sector perspective, the Fund’s holdings in industrials contributed to relative performance. In contrast, the Fund’s holdings in consumer discretionary detracted from relative performance.

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 e-commerce company, which experienced some price volatility amid rising regulatory pressures. While sentiment was weak in the reporting period, we remain constructive on the company over the long term. As the second largest e-commerce company in China, has a broad reach and its profitability is improving. China has many metropolitan densities and the complexity of making deliveries to most households is high, creating a competitive moat for an e-commerce player such as


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. Consumption is rising, auto sales are growing, restaurants have long lines and consumers feel comfortable gathering indoors.

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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