Monthly Commentary - December 2021

Monthly Commentary - December 2021


Chinese equities continued to underperform regional Asian stock in the last month of the year. 2021 was a volatile year for Chinese equity markets with a variety of issues including concerns regarding anti-monopoly regulations faced by internet platform companies, Chinese ADR delistings, solvency risks surrounding China’s property markets and general concerns about growth slowing given both internal and external factors. These concerns resulted in weak foreign sentiment and resulted in stock market performance divergence between U.S. and Hong Kong-listed Chinese securities with that of the domestic A-share-listed Chinese securities. Hong Kong dually listed stocks continue to see record high levels of discount compared with those of their China counterparts.


For the month ending December 31, 2021 China Fund Inc. returned -4.08% while its benchmark, the MSCI China All Shares Index, returned -1.52%. From a sector perspective, the Fund’s holdings within information technology, consumer discretionary and consumer staples detracted the most to relative performance. On the other hand, holdings in financial, materials and health care contributed to performance.

Among individual securities, property management services provider KWG Living Group Holdings detracted from performance. The company 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.

A contributor among individual stocks was brokerage firm CITIC Securities Co. The Fund’s 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.


Looking ahead, we believe 2022 will be a year of adaptation to the new policies in place. Tough regulations might have moderated growth but have not completely derailed growth for many of China’s leading companies. There will likely be stability, both economically and politically, for the country as highlighted in the recent central economic work conference. China’s government also has sufficient monetary tools to deploy if it needs to step in to support economic growth. However, given growth targets which are largely within expectation, we expect that any monetary support will more targeted.

In 2022, we believe that China will continue to be focused on a strict COVID-19 policy. China’s well executed COVID measures have ensured that most businesses operations continue smoothly albeit the recovery in consumer related opportunities may take slightly longer to unfold. China will also be focused on its longer-term renewable goals and we continue to expect these areas to be fast growing opportunities. Valuations have corrected down with market uncertainty over the past year providing for an opportunity to buy into the market.

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.

Back to Fund Commentaries