Monthly Commentary - January 2022

Monthly Commentary - January 2022


Chinese equities declined in January, with onshore A-shares experiencing some profit taking after outperforming in 2021. International sentiment towards China remained negative as investors questioned the fate of foreign listings of Chinese companies and whether the VIE (variable interest entity) structure can be used for new foreign IPOs. Within offshore China equities, growth names within the information technology and health care sectors led the MSCI China Index lower, followed by consumer and materials stocks. Chinese small caps underperformed large caps in January, consistent with broader emerging market and Asian small cap trends.


For the month ending January 31, 2022, China Fund Inc. returned -4.13% while its benchmark, the MSCI China All Shares Index, returned -5.32%. From a sector perspective, the Fund’s holdings within consumer discretionary and real estate contributed the most to relative performance. On the other hand, holdings in industrials and information technology were the biggest detractors from performance.

A contributor among individual stocks was real estate developer China Overseas Land and Investment, a state owned enterprise (SOE). In the current environment, SOE developers are believed to best benefit from market consolidation given their strong balance sheets which provide them the financial ability to buy cheaper property assets.

A detractor among individual stocks was Times China Holdings, a southern China focused developer which experienced weak performance due to a tightening policy environment. We believe that this presents the opportunity for market consolidation over the longer term, and that leading regional players such as Times China should be able to grow market share under these conditions given their strong balance sheets. Real estate opportunities in China are also attractively valued and may offer high dividend yields making the risk-reward still favorable in our view.


Looking ahead, we think Chinese stock prices may be less influenced by macro forces such as regulatory intervention and inflation fears and more influenced by company fundamentals and secular growth. The confluence of easier monetary aggregates combined with attractive valuations and potentially robust corporate earnings paint a solid backdrop for 2022. Given the weaker performance of some sectors, valuations in China are also quite attractive in a global context. The bottom line is that China is aiming for quality growth and not just growth. We remain focused on the longer-term fundamentals of the domestic growth engine and believe there are many opportunities in China that stand to benefit from the country’s efforts at increased domestic self-sufficiency across a myriad of 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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