Monthly commentary - September 2021

Monthly commentary - September 2021


Chinese equities continued to show weakness in September, following recent regulatory announcements created on technology and for-profit education. In addition, recent economic data has pointed to a slowdown of economic growth which has been compounded by worries of a weaker real estate sector, as China Evergrande Group, one of the country’s largest real estate developers, has run into financial stress. Fears of systemic financial market contagion and the publicized electricity shortages after the government pressed for restrictions of energy production to reduce carbon output contributed to ongoing headwinds. Consumer discretionary, materials and information technology sectors were weakest during the quarter, while the healthcare sector was among the best performers.


For the month ending September 30, 2021, the Fund returned -4.92%, while its benchmark, the MSCI China All Shares Index, returned -2.70%. From a sector perspective, the Fund’s holdings in consumer staples and industrials were notable detractors from relative performance. On the other hand, the Fund’s holdings in financials and health care contributed to relative performance.

Individual holdings that contributed to the Fund’s relative performance during the month include brokerages CITIC Securities Co. and China Merchants Securities Co. The Fund’s significant allocation to brokerages stems from cheap valuations and still strong fundamentals and earnings growth given their ability to expand service offerings as China’s capital markets deepen.

Two detractors among individual holdings include property management services provider KWG Living Group Holdings and real estate development company Times China Holdings. Both companies continued to experience weakness on an ever tightening policy environment which has increased investors’ concerns about the outlook of the overall property market in China. However, given the recent sharp pull back in valuations, we continue to believe real estate opportunities in China are attractively valued and may offer high dividend yields, making the risk/reward prospects even more favorable.


First half earnings results announced in the September quarter in China showed continued COVID recovery and were generally encouraging across the board, except for a weaker recovery in some parts of consumption, e.g., consumer staples, which we continue to monitor closely. These earnings results also shed some light on potential government directives over the next year, which we believe will be positively directed toward China’s efforts at increased domestic self-sufficiency across a myriad of supply chains (e.g., technology and health care) and environmental efforts to further promote green energy developments in China. We believe there are many opportunities in China that stand to benefit positively from these developments and expect to see meaningful volume expansions, which should help drive positive earnings growth across these supported industries.

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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