The Fund is expected to be reorganized into the Matthews Asia Small Companies Fund on or about April 29, 2021, which is expected to be renamed the Matthews Emerging Markets Small Companies Fund on or about April 30, 2021. Please read the Supplement dated February 18, 2021 to the Matthews Asia Funds Prospectus dated April 29, 2020. Further information including income distribution dates can be found here.
Snapshot
Highly-differentiated growth strategy seeks alpha in Asia’s rapidly developing frontier and emerging economies
Deep fundamental approach focuses on undiscovered companies in under-covered markets
Capitalizes on rising consumer wealth and domestic consumption
Uncorrelated mix of countries dampens portfolio volatility
Under normal circumstances, the Matthews Emerging Asia Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia excluding Japan, South Korea, Hong Kong and Singapore. The Fund may also invest in the convertible securities, of any duration or quality of companies located in Asia excluding Japan, South Korea, Hong Kong and Singapore. The Fund is expected to invest a substantial portion of its net assets in the emerging countries and markets in the Asian region, including but not limited to, Bangladesh, Cambodia, China (including Taiwan, but excluding Hong Kong), India, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Pakistan, Papua New Guinea, Philippines, Sri Lanka, Thailand and Vietnam ("Emerging Asian Countries"). The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.
Risks
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.
The risks associated with investing in the Fund can be found in the
prospectus.
Asia excluding Japan, South Korea, Hong Kong and Singapore - Consists of all emerging countries and markets in the Asian region, excluding Japan, South Korea, Hong Kong and Singapore
Fees & Expenses
Gross Expense Ratio
1.65%
Net Expense Ratio
1.42%
Performance
Monthly
Quarterly
Calendar Year
As of 03/31/2021
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Emerging Asia Fund
MEASX
-1.61%
-0.09%
-0.09%
55.87%
-7.24%
2.48%
n.a.
3.17%
04/30/2013
MSCI Emerging Markets (EM) Asia Index
-2.96%
2.22%
2.22%
60.65%
9.83%
14.87%
n.a.
9.04%
As of 03/31/2021
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Emerging Asia Fund
MEASX
-1.61%
-0.09%
-0.09%
55.87%
-7.24%
2.48%
n.a.
3.17%
04/30/2013
MSCI Emerging Markets (EM) Asia Index
-2.96%
2.22%
2.22%
60.65%
9.83%
14.87%
n.a.
9.04%
For the years ended December 31st
Name
2020
2019
2018
2017
2016
2015
2014
Matthews Emerging Asia Fund
MEASX
-2.16%
-1.01%
-17.58%
18.42%
19.25%
-2.56%
17.39%
MSCI Emerging Markets (EM) Asia Index
28.77%
19.65%
-15.16%
43.27%
6.53%
-9.47%
5.27%
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results.Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.
Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.
Growth of a Hypothetical $10,000 Investment Since Inception
(as of 03/31/2021)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Taizo Ishida is a Portfolio Manager at Matthews Asia. He manages the firm's Asia Growth, Emerging Asia, and Japan Strategies. Prior to joining Matthews Asia in 2006, Taizo spent six years on the global and international teams at Wellington Management Company as a Vice President and Portfolio Manager. From 1997 to 2000, he was a Senior Securities Analyst and a member of the international investment team at USAA Investment Management Company. From 1990 to 1997, he was a Principal and Senior Research Analyst at Sanford Bernstein & Co. Prior to beginning his investment career at Yamaichi International (America), Inc. as a Research Analyst, he spent two years in Dhaka, Bangladesh as a Program Officer with the United Nations Development Program. Taizo received a B.A. in Social Science from International Christian University in Tokyo and an M.A. in International Relations from The City College of New York. He is fluent in Japanese.
Robert Harvey is a Portfolio Manager at Matthews Asia and manages the firm's Emerging Asia Strategy. Prior to joining Matthews Asia in 2012, he was a Senior Portfolio Manager at PXP Vietnam Asset Management from 2009 to 2012, where he focused on Vietnamese equities. Previously, he was a Portfolio Manager on the Global Emerging Markets team at F&C Asset Management in London from 2003 to 2009. Robert started his investment career in 1994 as an Assistant Equity Portfolio Manager with the Standard Bank of South Africa's asset management division. He received a Bachelor of Commerce in Accountancy and Commercial Law from Rhodes University in South Africa and a Bachelor of Accounting Science in Advanced Management Accounting, Taxation and Auditing at the University of South Africa.
Top 10 holdings may combine more than one security from the same issuer and related depositary receipts. Source: BNY Mellon Investment Servicing (US) Inc.
Portfolio Breakdown (%)
(as of 03/31/2021)
Sector Allocation
Country Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
33.7
15.0
18.7
Consumer Discretionary
25.8
19.6
6.2
Consumer Staples
19.0
5.0
14.0
Real Estate
7.2
2.3
4.9
Information Technology
5.3
26.0
-20.7
Industrials
4.3
4.6
-0.3
Energy
3.5
2.8
0.7
Health Care
1.4
5.2
-3.8
Communication Services
0.9
12.6
-11.7
Materials
0.7
5.1
-4.4
Utilities
0.0
1.8
-1.8
Liabilities in Excess of Cash and Other Assets
-1.7
0.0
-1.7
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Country
Fund
Benchmark
Difference
Vietnam
23.9
0.0
23.9
India
14.4
12.1
2.3
China/Hong Kong
13.7
47.6
-33.9
Indonesia
12.7
1.5
11.2
Pakistan
10.1
0.0
10.1
Sri Lanka
8.3
0.0
8.3
Bangladesh
5.9
0.0
5.9
Philippines
5.8
0.8
5.0
Thailand
3.5
2.4
1.1
Australia
3.5
0.0
3.5
Taiwan
0.0
17.2
-17.2
South Korea
0.0
16.7
-16.7
Malaysia
0.0
1.7
-1.7
Liabilities in Excess of Cash and Other Assets
-1.7
0.0
-1.7
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
11.8
64.2
-52.4
Large Cap ($10B-$25B)
8.2
18.8
-10.6
Mid Cap ($3B-$10B)
34.9
15.8
19.1
Small Cap (under $3B)
46.8
1.2
45.6
Liabilities in Excess of Cash and Other Assets
-1.7
0.0
-1.7
Source: FactSet Research Systems.
Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.
There is no guarantee that the Fund will pay or continue to pay distributions.
Past performance is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost.
For the year ending December 31, 2020, the Matthews Emerging Asia Fund returned -2.16% (Investor Class) and -1.94% (Institutional Class), while its benchmark the MSCI Emerging Markets Asia Index, returned 28.77%. For the fourth quarter, the Fund returned 19.17% (Investor Class) and 19.18% (Institutional Class) versus 18.93% for the Index.
Market Environment:
In 2020, there was a notable divergence in performance between the benchmark and the geographies where the Fund typically invests. The benchmark index is dominated by three markets—China/Hong Kong, South Korea and Taiwan—which collectively made up more than 80% of the index in the reporting period. These markets all had very strong returns. For example, Chinese equites, represented by the MSCI China Index, returned 29.67% for the year ending December 31, 2020, while Korean equities, represented by the Korea Composite Stock Price Index returned 39.76% for the same period. As we have always been focused on the smaller emerging and frontier markets in Asia, Asia’s most undeveloped economies, the Fund has virtually no exposure to the South Korea and Taiwan markets and a large underweight position in China over the number of years. These three giants benefit from global trade and economic trends.
During the year, equity markets among smaller, less developed economies in Asia struggled amid the public health and economic impacts of the pandemic. In economies such as Bangladesh, Pakistan and Sri Lanka, consumer demand remained weak throughout the year and many consumer-oriented companies were struggling. With low levels of momentum in these markets, investors largely remained on the sidelines. Broad equity markets in Pakistan, Thailand, the Philippines and Malaysia were all negative in the year. Towards the end of the year, many of these markets started to rebound. India, in particular, saw a notable upswing in equity prices as sentiment started to slowly improve. As the economic recovery started to broaden, some investors began to look for more value-oriented opportunities, which often favors less developed markets.
In contrast, equity markets in economies representing the more developed end of the spectrum in Asia—such as China, South Korea and Taiwan—generated much stronger performance during the year. Following volatility in the first quarter, these markets quickly regained significant momentum. South Korea and Taiwan have economies that are largely driven by global demand for information technology, which was strong in the year. As global companies increasingly moved their operations online, there was increased demand for key components of the technology supply chain. Sentiment toward North Asian economies was also stronger due to faster economic re-opening.
Performance Contributors and Detractors:
The Fund’s overweight to Sri Lanka, Indonesia and Pakistan detracted from performance during the full year. Sri Lanka’s economy is largely dependent on tourism, which came to a standstill amid the pandemic. While valuations for Sri Lanka equities are extremely low, negative sentiment prevented a rebound. The government’s efforts to stimulate the economy are putting pressure on its fiscal position, placing downward pressure on its currency and sentiment more broadly. Turning to Indonesia, which is primarily a domestic economy with low exports, recurring lockdowns throughout the year stifled economic activity. On the other hand, stock selection in China/Hong Kong was positive across the full year. China was one of the few economies to have an active IPO market in the year, as domestic Chinese investor sentiment quickly turned bullish as the pandemic in China became contained. The Fund participated in some of those IPOs, which generated attractive returns.
Among individual securities, Chinese electric vehicle maker XPeng was a contributor. As one of the leading EV (electric vehicle) companies in China, Xpeng competes with local EV makers, as well as Tesla, which now produces cars in China. In our view, China is a natural market for EVs, where electric two-wheelers are already familiar to many consumers. Elsewhere, Indonesia retailer Ramayana Lestari Sentosa was a detractor. When the virus hit Indonesia and the economy moved into lockdown, sentiment turned negative. However, we expect economic activity in Indonesia to gradually recover and normalize and remain constructive on the holding over the long term.
Notable Portfolio Changes:
In the fourth quarter, we added a position to Bajaj Finance, an Indian financial company. Bajaj uses algorithms for its lending activities. The company has extensive borrowing histories and financial data for many of its customers, allowing them to make decisions very quickly for new loan approvals using proprietary data. Looking ahead, the company plans to offer a broader menu of integrated financial services. We also added a Chinese property services business, Shimao Services, with an attractive growth trajectory. Shimao is working to increase value-added services to their existing clients, while expanding to new segments, such as universities and hospitals.
Outlook:
While smaller and less developed economies bore the brunt of the pandemic’s economic pain, we expect that corporate earnings may rebound strongly as daily life begins to normalize over the coming years. From a weak base in 2020, we see room for earnings growth. In addition, we see strong valuation support among equity prices. Because these economies have been neglected and many investors are underweight to these markets, we expect to see multiple expansion as earnings start to turn around.
Vietnam continues to have a robust macroeconomic story, with a young, educated workforce and continued inflows of foreign direct investment. Fundamentals remain strong in Vietnam. Pakistan’s market has performed better following a difficult period. With Pakistan’s large population, companies in banks and consumer-facing businesses have a large opportunity set for future growth. Indonesia also has a large population and its economy is quickly reopening. We see opportunities for solid returns from Indonesia as the impact of the virus begins to recede.
The bottom line of these emerging economies are demographics. As these economies with large populations become wealthier, consumer spending tends to naturally rise. Well-managed consumer-oriented companies are poised to tap into this growth, creating long-term structural opportunities for investors.
As of 12/31/2020, the securities mentioned comprised the Matthews Emerging Asia Fund in the following percentages: XPeng, Inc. ADR, 1.6%; PT Ramayana Lestari Sentosa, 1.7%; Bajaj Finance, Ltd., 3.6%; Shimao Services Holdings, Ltd., 1.9%. The Fund held no position in Tesla. Current and future holdings are subject to change and risk. Earnings growth is not representative of the Fund’s future performance.
Average Annual Total Returns - MEASX as of 03/31/2021
1YR
3YR
5YR
10YR
Since Inception
Inception Date
55.87%
-7.24%
2.48%
N.A.
3.17%
04/30/2013
All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.
Fees & Expenses
Gross Expense Ratio
1.65%
Net Expense Ratio
1.42%
Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class (which is offered through a separate prospectus to eligible investors) to 1.20%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2021 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.
The Markit iBoxx Asian Local Bond Index tracks the total return performance of a bond portfolio consisting of local-currency denominated, high quality and liquid bonds in Asia ex-Japan. The Markit iBoxx Asian Local Bond Index includes bonds from the following countries: China (on- and offshore markets), Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.
The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.
The views and opinions in the commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.
Commentary
Period ended December 31, 2020
For the year ending December 31, 2020, the Matthews Emerging Asia Fund returned -2.16% (Investor Class) and -1.94% (Institutional Class), while its benchmark the MSCI Emerging Markets Asia Index, returned 28.77%. For the fourth quarter, the Fund returned 19.17% (Investor Class) and 19.18% (Institutional Class) versus 18.93% for the Index.
Market Environment:
In 2020, there was a notable divergence in performance between the benchmark and the geographies where the Fund typically invests. The benchmark index is dominated by three markets—China/Hong Kong, South Korea and Taiwan—which collectively made up more than 80% of the index in the reporting period. These markets all had very strong returns. For example, Chinese equites, represented by the MSCI China Index, returned 29.67% for the year ending December 31, 2020, while Korean equities, represented by the Korea Composite Stock Price Index returned 39.76% for the same period. As we have always been focused on the smaller emerging and frontier markets in Asia, Asia’s most undeveloped economies, the Fund has virtually no exposure to the South Korea and Taiwan markets and a large underweight position in China over the number of years. These three giants benefit from global trade and economic trends.
During the year, equity markets among smaller, less developed economies in Asia struggled amid the public health and economic impacts of the pandemic. In economies such as Bangladesh, Pakistan and Sri Lanka, consumer demand remained weak throughout the year and many consumer-oriented companies were struggling. With low levels of momentum in these markets, investors largely remained on the sidelines. Broad equity markets in Pakistan, Thailand, the Philippines and Malaysia were all negative in the year. Towards the end of the year, many of these markets started to rebound. India, in particular, saw a notable upswing in equity prices as sentiment started to slowly improve. As the economic recovery started to broaden, some investors began to look for more value-oriented opportunities, which often favors less developed markets.
In contrast, equity markets in economies representing the more developed end of the spectrum in Asia—such as China, South Korea and Taiwan—generated much stronger performance during the year. Following volatility in the first quarter, these markets quickly regained significant momentum. South Korea and Taiwan have economies that are largely driven by global demand for information technology, which was strong in the year. As global companies increasingly moved their operations online, there was increased demand for key components of the technology supply chain. Sentiment toward North Asian economies was also stronger due to faster economic re-opening.
Performance Contributors and Detractors:
The Fund’s overweight to Sri Lanka, Indonesia and Pakistan detracted from performance during the full year. Sri Lanka’s economy is largely dependent on tourism, which came to a standstill amid the pandemic. While valuations for Sri Lanka equities are extremely low, negative sentiment prevented a rebound. The government’s efforts to stimulate the economy are putting pressure on its fiscal position, placing downward pressure on its currency and sentiment more broadly. Turning to Indonesia, which is primarily a domestic economy with low exports, recurring lockdowns throughout the year stifled economic activity. On the other hand, stock selection in China/Hong Kong was positive across the full year. China was one of the few economies to have an active IPO market in the year, as domestic Chinese investor sentiment quickly turned bullish as the pandemic in China became contained. The Fund participated in some of those IPOs, which generated attractive returns.
Among individual securities, Chinese electric vehicle maker XPeng was a contributor. As one of the leading EV (electric vehicle) companies in China, Xpeng competes with local EV makers, as well as Tesla, which now produces cars in China. In our view, China is a natural market for EVs, where electric two-wheelers are already familiar to many consumers. Elsewhere, Indonesia retailer Ramayana Lestari Sentosa was a detractor. When the virus hit Indonesia and the economy moved into lockdown, sentiment turned negative. However, we expect economic activity in Indonesia to gradually recover and normalize and remain constructive on the holding over the long term.
Notable Portfolio Changes:
In the fourth quarter, we added a position to Bajaj Finance, an Indian financial company. Bajaj uses algorithms for its lending activities. The company has extensive borrowing histories and financial data for many of its customers, allowing them to make decisions very quickly for new loan approvals using proprietary data. Looking ahead, the company plans to offer a broader menu of integrated financial services. We also added a Chinese property services business, Shimao Services, with an attractive growth trajectory. Shimao is working to increase value-added services to their existing clients, while expanding to new segments, such as universities and hospitals.
Outlook:
While smaller and less developed economies bore the brunt of the pandemic’s economic pain, we expect that corporate earnings may rebound strongly as daily life begins to normalize over the coming years. From a weak base in 2020, we see room for earnings growth. In addition, we see strong valuation support among equity prices. Because these economies have been neglected and many investors are underweight to these markets, we expect to see multiple expansion as earnings start to turn around.
Vietnam continues to have a robust macroeconomic story, with a young, educated workforce and continued inflows of foreign direct investment. Fundamentals remain strong in Vietnam. Pakistan’s market has performed better following a difficult period. With Pakistan’s large population, companies in banks and consumer-facing businesses have a large opportunity set for future growth. Indonesia also has a large population and its economy is quickly reopening. We see opportunities for solid returns from Indonesia as the impact of the virus begins to recede.
The bottom line of these emerging economies are demographics. As these economies with large populations become wealthier, consumer spending tends to naturally rise. Well-managed consumer-oriented companies are poised to tap into this growth, creating long-term structural opportunities for investors.
As of 12/31/2020, the securities mentioned comprised the Matthews Emerging Asia Fund in the following percentages: XPeng, Inc. ADR, 1.6%; PT Ramayana Lestari Sentosa, 1.7%; Bajaj Finance, Ltd., 3.6%; Shimao Services Holdings, Ltd., 1.9%. The Fund held no position in Tesla. Current and future holdings are subject to change and risk. Earnings growth is not representative of the Fund’s future performance.
Average Annual Total Returns - MEASX as of 03/31/2021
All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.
Fees & Expenses
Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class (which is offered through a separate prospectus to eligible investors) to 1.20%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2021 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.