Monthly Commentary - August 2022

Monthly Commentary - August 2022

Market Environment

Chinese equities were flattish in August with the exception of small caps which posted negative returns. The People’s Bank of China (PBOC) announced a series of monetary and fiscal support measures during the month, including another cut to its 1-year policy rate and a lowering of its longer- term loan prime rate. In late August, COVID-related worries reappeared as cases jumped in the mega city of Chengdu, with a population of over 20 million, spurring a city-wide lockdown for several days and mass testing—a protocol which has been discouraged since May of this year.

Performance Contributors and Detractors

For the month ending August 31, 2022, China Fund, Inc. returned -1.35% while its benchmark, the MSCI China All Shares Index, returned -1.60%. From a sector perspective, allocation and stock selection within consumer discretionary and real estate contributed the most to relative performance, while our allocation and stock selection within industrials and information technology sectors detracted the most from relative performance.

Turning to individual securities, Pinduoduo, China’s largest agriculture-focused technology platform that connects farmers and distributors with consumers directly through its interactive shopping experience, contributed the most to the Fund’s absolute and relative performance. Pinduoduo’s stronger-than-expected second quarter earnings contributed to its stock appreciation. The company’s platform has been growing faster than peers and has also experienced continued strong momentum of delivering monetization of the business model. On the other hand, Estun Automation, China’s leading industrial robot manufacturer, detracted the most from performance due to weaker-than-expected second quarter results, dragged from weaker industrial industry performance due to COVID lockdowns. However, order books for the company continue to be strong boding positively for a stronger second half of 2022 in our view.


China’s second quarter results released in August continued to reflect a weak economy dealing with COVID lockdown issues. At the same time, the overhang from a weak property sector and geopolitical tensions continue to plague China’s equity market performance. There continues to be a lack of visibility as to when COVID lockdowns would fully conclude. All eyes are on the announced October 16 start of this year’s National Congress of the Chinese Communist Party meeting as some market participants point to the conclusion of the meeting as a probable point in time, hoping that markets get some clarification on many issues related to the economy, COVID protocols and regulations. However, increasingly, other views express that any full relaxation may only come in the early part of 2023.

While it is difficult to predict an actual point in time where we might see the end of current strict COVID measures, we realize that COVID will eventually be behind us. As more of the economy is reeling in the impact of a stalling economy, it might encourage authorities to consider opening up sooner.

As sentiment towards growth globally remain tepid, we continue to believe the significantly lower valuations might warrant a re-interest in this category as well. We remain cautiously optimistic that the conditions in China will continue to improve.

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.


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