market environment
China’s difficulties are well documented. From the second quarter onwards, consumer sentiment continued to deteriorate, and real estate prices continued to decline month-on-month. Premiums are being reduced as consumers spend more, but consumers are becoming much more selective about what they spend on.
Nevertheless, many Chinese companies showed resilience. While earnings were disappointing in many areas, there were notable exceptions, particularly in e-commerce, where the focus is more on improving profitability than purely on sales growth. Companies with more direct ties to China’s domestic economy faced greater challenges. Among retailers, we are seeing margins decline as companies try to maintain sales volume.
While we believe valuations are generally compelling, earnings forecasts can be volatile and some stocks may be attractive while others may be expensive. Towards the end of the quarter, markets rallied after central banks rolled out broad and significant stimulus measures.
Contributors and critics
Matthews China Fund (Trade, Portfolio) returned 27.48% (Investor Class) and 27.42% (Institutional Investor Class) for the quarter ended September 30, 2024, compared to its benchmark MSCI China Index. The return for the same period was 23.65%.
By sector, the top three contributors to relative performance were Financials and Real Estate with stock selection and Utilities with zero allocation. The top three critics were consumer discretion through stock selection, health care, and energy.
The largest contributors to absolute performance include e-commerce platform company Alibaba Group (NYSE:BABA), China’s largest food delivery service and internet platform company Meituan (HKSE:03690), and leading company JD .com (NASDAQ:JD). A leading e-commerce platform.
The top three critics include PetroChina (SHSE:601857), one of China’s largest state-owned oil and gas companies, Orient Overseas (International) Limited (HKSE:00316), a Chinese industrial company; They included global company MMG (HKSE:01208). Metal mining company.
outlook
The economic stimulus package announced by the People’s Bank of China includes measures to boost the stock market, support the real estate sector and add liquidity to the economy. We view these proposals as the broadest and most aggressive set of proposals since China’s economy began facing difficulties more than three years ago. However, it will take time to determine whether these measures will be a sustainable catalyst for economic recovery or whether further stimulus is warranted.
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We think Chinese stocks are too cheap amidst all the negative macro factors. Although profits have increased this year, they are not fully reflected in stock market prices. Therefore, we don’t think the economy needs to improve significantly for the market to perform well.
Meanwhile, we expect continued volatility in the Chinese market, especially as we approach and pass the US election.
All performance quoted is past performance and is not a guarantee of future results. Investment return and principal value will fluctuate as market conditions change, so shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than estimated returns. Returns would have been even lower had some of the Fund’s fees and expenses not been waived. For the latest month-end performance of the fund, please visit matthewsasia.com.
Investing in Asian securities may involve risks such as social and political instability, market illiquidity, exchange rate fluctuations, high levels of volatility, and restrictive regulation. Investing in emerging markets involves different and greater risks because they are significantly smaller, less liquid, and more volatile than securities markets in more developed markets. Additionally, investments in single-country funds, which are considered non-diversified funds, may be subject to higher market risk than diversified funds due to their concentration in a particular country. The information contained herein has been obtained from sources believed to be reliable and accurate at the time of compilation, but no representations or warranties (express or implied) are made as to the accuracy or completeness of this information. Not done. Neither the Fund nor the Investment Adviser accepts any liability for any loss directly or consequentially arising from the use of this information.
The views and opinions expressed in comments are as of the date of the report, are subject to change and may not reflect current views. They do not guarantee performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors and management reserves the right to change its views on individual stocks, sectors or markets at any time. Accordingly, the views expressed should not be relied upon as a prediction of the Fund’s future investment intentions. It should not be assumed that any investment will be profitable or equal the performance of the securities or sectors mentioned herein. This information is not a recommendation to buy or sell any securities mentioned.
This article first appeared on GuruFocus.
