Monthly Commentary - May 2021

Monthly Commentary - May 2021


Chinese equities were slightly higher in May after a volatile start to the calendar year. Earlier market weakness may have stemmed from regulatory concerns, as investors weighed the potential impact of China’s proactive approach to reigning in monopolistic behavior within its technology sector. In addition, China’s central bank also sought to reduce excess liquidity, although in minor, incremental steps. Geopolitical headlines continued to percolate around China’s cotton industry, with global conglomerates taking a closer look at supply chains. While financial markets in China have experienced recent volatility, the actual economic recovery in China remains steady and economic data encouraging.


For the month ending May 30, 2021, the Fund returned 2.02%, while its primary benchmark, the MSCI China All Shares Index, returned 2.81%. From a sector perspective, an underweight in the consumer staples sector detracted from relative performance. In contrast, stock selection in the financials sector contributed to relative performance.

Among individual stocks, a contributor was China Merchants Bank, a retail bank franchise that employs a prudent approach and commands good asset quality. Strong share price performance of the company’s stock has been supported, in our view, by resilient earnings per share growth. We believe the stock remains attractively valued and may have further room for price appreciation, as the bank serves an appealing demographic of high-end clients and continues to expand its business.

A detractor among individual stocks was e-commerce company, whose stock price has seen some weakness amid the company’s expansion into group buying, a new type of grocery e-commerce model in China. While there could be some margin pressure in the near term, we believe the company remains well positioned longer term. has seen strong growth, with a majority of new users coming from less developed urban and rural areas that have traditionally been underserved, facilitating pent-up demand.


While China’s equity markets have underperformed global markets in recent months, we do see some potential tailwinds. China is ahead of most economies in terms of recovery and normalization of interest rates. Therefore, the current reduction of excess liquidity could ease just as other major central banks normalize. A second potential tailwind could come from the absence of additional regulatory headwinds as major players begin to adhere to the ‘new normal’ creating opportunities within the updated regulatory framework. Lastly, the most recent first quarter results from China point to a continued strong picture for corporate earnings growth this year. We continue to focus on domestic consumption as a key driver of China’s growth, with particular emphasis on the growing consumer power within less developed urban centers.

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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