Monthly Commentary - July 2021

Monthly Commentary - July 2021


July 2021 was a difficult month for Asia, and Chinese equities were Asia’s worst performers in the month. Market weakness stemmed from a series of regulatory announcements by Chinese regulators related to the technology and for-profit education industries weighed on investor sentiment as to the operating environment within China and the potential effects on profitability of Chinese companies. In addition, the Chinese markets experienced a slight liquidity squeeze during the latter part of the month caused by the peak season for tax payments.

China’s economy continued to recover from COVID-19. While manufacturing has completely recovered from the pandemic, periodic, small COVID-19 outbreaks have left many Chinese consumers wary of spending on services that require gathering in confined spaces, and therefore spending on services may take longer to recover than we expected a month ago.


For the month ending July 31, 2021, the Fund returned –7.64%, while its benchmark, the MSCI China All Shares Index, returned –11.09%. From a sector perspective, the Fund’s holdings in the real estate, materials and communications services sectors detracted from relative performance, while holdings in consumer discretion and industrial sectors contributed to relative performance.

Among individual stocks, Sungrow Power Supply Company, a solar component manufacturer benefiting from renewable energy growth, was the largest contributor to absolute and relative performance. China’s plan to be carbon neutral by 2060 has promoted significant volume expansion opportunities across the solar chain. Sungrow has strong product offerings in the high end inverter space and strong execution by management has grown the company’s global market share considerably over the past decade. Additionally, there is further opportunity to expand Sungrow’s total addressable market as the energy storage system market grows.

A detractor among individual stocks was Bilibili, Inc., one of China’s leading internet entertainment platforms catering to Gen Z audience (born after 1990s). While Bilibili’s operational metrics from user acquisition and engagement continues to trend positively, China’s policies to regulate the health and development of the Chinese internet industry continues to put pressure on internet names. We are cautious about the ongoing regulations but believe that larger companies will be more in compliance with any proposed new changes and can adapt their businesses more successfully.


Looking ahead to the rest of the year, stock market volatility can continue to hurt sentiment but should not have a meaningful impact on macro-economic performance, in our view. While market concerns of increased regulatory scrutiny may persist over the near term, we expect stock prices may be less influenced by macro forces of synchronized recovery, regulatory oversight and inflation fears and more influenced by company fundamentals and secular growth. In fact, we believe that company fundamentals and attractive valuations can overcome the headwinds of negative headlines and rhetoric.

Given the weaker performance of some sectors this year, valuations in China are starting to look reasonable, and in a global context, actually quite attractive. 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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