Monthly Commentary - December 2023

Monthly Commentary - December 2023

Market Environment

Chinese equities were the primary weak spot among major emerging equity markets in December. Positive tones stemming from November's APEC meetings, policy support announcements from the Central Economic Work Conference (CEWC) and a pivot in the U.S. FED's interest rate outlook were not enough to propel Chinese stocks higher. December PMI manufacturing and service data straddled the line between growth and contraction and other economic metrics like retail sales failed to exceed market expectations. Market participants expect government stimulus to address the economy's tepid recovery to be moderate and somewhat underwhelming which continues to dampen sentiment. On the positive side, consensus estimates have Chinese corporate earnings increasing mid-teens in 2024 and equity valuations are pricing in extreme bearishness which creates opportunity for an upside surprise in stocks after three consecutive negative years. Chinese small and mid caps ended lower but outperformed weak large and mega caps during December.

Performance Contributors and Detractors

For the month December 31, 2023, China Fund, Inc. returned 2.03% while its benchmark, the MSCI China All Shares Index, returned 1.97%. From a sector perspective, consumer discretionary, communication services and consumer staples were the top contributors to relative performance while financials, health care and materials detracted the most during the month.

Turning to individual holdings, Alibaba, the largest e-commerce platform in China was a top contributor to performance. The company did well given its relative defensiveness owing to cheap valuations. Conversely, property developer CIFI Holdings was among the biggest detractors to performance. CIFI's stocks only resumed trading at the end of September after a long suspension and its negative share price performance had an accumulated impact over the time it was suspended.


2023 has been generally a challenging year for China. Despite the lifting of COVID restrictions in the country, the government's lack of stimulus generally led to weakening economic support for the rest of the year. At the same time, property market woes continued for a prolonged period, impacting sentiment and business confidence in the country. While more supportive measures have been rolled later in the year to address property market concerns, a meaningful inflection remains to be seen.

Looking ahead, we are cautiously looking for a stabilization of the deterioration in property markets. While we do not expect a significant warming of geo-relations, the ongoing current status quo of a more construction post-APEC posturing would be welcomed by the market. Valuations continued to trend down in 2023, and the broader China market hovers around similar levels as 2009 despite better quality businesses and earnings profile. We continue to believe that patience is needed in these market environments and that it will ultimately pay off once the market turns. We intend to stick to our knitting and aim to deliver consistent growth-at-a reasonable price strategy for our clients.