Monthly Commentary - November 30, 2023
Market Environment
Chinese equities were positive in November but underperformed other major emerging markets. The country's macro recovery remains on-track, but restrained by a continued lack of consumer confidence even as the Chinese government announced a series of measures to support its property market. With the 2023 GDP growth target of 5% seemingly within reach, the Chinese government is now turning its attention towards 2024 policy. We expect an upward revision to the central government fiscal deficit alongside already announced property market reforms including increased funding for urban low-cost housing renovation and an unsecured lending program for qualified developers with an initial list of 50 developers eligible for support. In terms of markets, quarterly results of leading Chinese companies, especially large cap technology firms seem to be hinting towards upward surprises in terms of top line revenue and earnings. Communication services and IT companies outperformed other sectors in November.
Performance Contributors and Detractors
For the month November 30, 2023, China Fund, Inc. returned 2.69% while its benchmark, the MSCI China All Shares Index, returned 2.01%. From a sector perspective, communication services, consumer discretionary and real estate were the top contributors to performance while health care, financials and consumer staples detracted the most during the month.
Turning to individual holdings, the top contributor to the portfolio's absolute and relative performance was Pinduoduo (PDD), one of China's largest e-commerce platforms that started its businesses with a focus on lower-tier city, price sensitive consumers directly through its interactive shopping experience. PDD continued to deliver strong results and has also successfully gained growth momentum overseas. Gross merchandise value (GMV) growth and monetization for PDD has remained on track.
Conversely, Meituan, China's largest food delivery platform, detracted the most from relative performance partly due to our overweight position. The company's shares have been under pressure given concerns about competition with ByteDance's Douyin in both food delivery and in-store services. Operationally, a still weak macro presents for challenging conditions for the firm but despite so, given attractive valuations, we continue to hold onto the position and await a more meaningful consumption recovery to benefit the stock down the road.
Outlook
China continues to be grinding its way through a slow economic recovery with continued challenges including a weak property market, weak global demand and weak business confidence. While the government has not offered any bazooka stimulus, more support for the property market was seen over the past few months. We believe the government continues to be in a position to support its economy further if needed.
Looking into the final couple of months of 2023, it is hard to see a major recovery in economic growth, although comparables will be more favorable. We will look for the bottoming of the property market and increased efforts to boost business confidence. All in, things are not collapsing, but we are mindful that major catalysts for recovery remain at bay given all of the above, and a still challenging geopolitical environment.