Monthly Commentary - August 31, 2023

Monthly Commentary - August 31, 2023

Market Environment 

China equities posted some of the weakest results among major global markets in August as weak housing data alongside lackluster manufacturing results kept a dark cloud over the Chinese economy while putting more pressure on consumer sentiment. While markets seem intent to remain volatile, the central government has announced a flurry of policies in the last six weeks including measures to boost private investment, measures to ease mortgage requirements to spur housing demand, measures to boost foreign direct investment, policy to ease pressure and create refinancing options for property developers and incentives for banks to ease consumer credit restrictions and lower borrowing rates on mortgages. In addition, geopolitical engagement between U.S. and Chinese leaders continued as the Chinese government welcomed Commerce Secretary Gina Raimondo to advance talks between the superpowers on topics of trade. Published accomplishments from the visit are focused on re-opening lines of communication between the two countries to resolve problematic issues surrounding trade and intellectual property.

Performance Contributors and Detractors

For the month ending August 31, 2023, China Fund, Inc. returned -8.59% while its benchmark, the MSCI China All Shares Index, returned -8.60%. From a sector perspective, the portfolio's stock selection within consumer staples and utilities detracted the most from relative performance, while stock selection within real estate and communication services contributed the most to relative performance.

Turning to individual holdings, Pinduoduo, one of China's largest ecommerce platforms that started its businesses with a focus on lower-tier city, price sensitive consumers directly through its interactive shopping experience, was the top contributor to both absolute and relative performance. 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, was the biggest detractor during the month. The e-Commerce platform has generated concerns overs its growth prospects and has been weighted down by China's muted recovery.


Property market struggles continue to be present and negative news flow has resulted in continued volatile performance in this space. We continue to monitor this segment of the market closely as China's pace of economic recovery is broadly still dependent on a functioning property market. Looking ahead, the earnings story should benefit from easier comparables with the second half of 2022. We expect earnings to continue to be a catalyst. However, given weak sentiment, China needs to deliver a very strong set of earnings to re-rate in a meaningful way, and we remain more cautious on that front and expect only a gradual recovery ahead. Sentiment on the ground remains weak, which could call for more supportive policies. At the same time, we continue to see more companies delivering on monetization and increased room for shareholder return as more companies consider buybacks and dividends. Geopolitics remain a relevant concern, and unfortunately, does not offer much optimism at the moment, leading to continued volatile market conditions.