Monthly Commentary - June 2021

Monthly Commentary - June 2021


China equity markets recovered in the second quarter post a volatile first quarter and were slightly higher in June. China's macro environment remained relatively stable and the central bank's monetary policy remained largely unchanged. Consumption industries in China largely remain on a recovery track although consumption patterns have not entirely recovered to pre-COVID levels. Most cyclical sectors in China were weak in June. The financials, materials and real estate sectors were fell sharply during the month while health care, information technology and energy were strongest. Rotation from growth to cyclical names seems to be slowing as the past surge in industrial profits seems priced into markets. We expect Chinese regulators to continue to fine tune liquidity and credit as to maintain a steady economic trajectory and balanced monetary aggregates.


For the month ending June 30, 2021, the Fund returned 0.75%, while its primary benchmark, the MSCI China All Shares Index, returned -0.44%. From a sector perspective, stock selection in the financials sector contributed to relative performance. In contrast, stock selection in the consumer discretionary sector detracted from relative performance.

Among the portfolio›s financials holdings, our holding in China's premiere banking franchise, China Merchants Bank that employs a prudent approach and commands good asset quality did well given attractive valuations and the bank's ability to continue to provide financial solutions to high net worth individuals.

A detractor among individual stocks was Midea Group Co., a domestic demand-oriented consumer discretionary company, which suffered from weaker performance given concerns about rising raw material prices compressing margins. However, we believe that consumer demand still remains resilient in China, which will facilitate the ability to pass on prices in the near future.


First quarter earnings in China point to a continued recovery in China's economy. Encouragingly, China's economy continues to benefit from growth coming from a broad range of different sectors and industries. As a result, cheaper parts of the market have also seen performance recovery given continued earnings delivery. Looking ahead to the second half of the year, we continue to expect corporate earnings to remain on track. While market concerns of increased regulatory scrutiny may persist over the near term, we remain focused on the longer-term fundamentals of the domestic growth engine. Among the most attractive themes from a secular growth perspective include technology upgrades, health and wellness trends, and services that enhance quality of life and premium consumer goods. 

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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