Under normal circumstances, the Matthews Asia Growth 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. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies. 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.
These and other risks associated with investing in the Fund can be found in the
prospectus.
Asia - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region
Fees & Expenses
Gross Expense Ratio
1.07%
Objective
Long-term capital appreciation.
Strategy
Under normal circumstances, the Matthews Asia Growth 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. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies. 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
Performance
Monthly
Quarterly
Calendar Year
As of 02/28/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asia Growth Fund - MPACX
10/31/2003
MPACX
-8.35%
-1.14%
0.05%
-18.99%
-3.94%
-2.82%
3.68%
6.70%
MSCI All Country Asia Pacific Index
-5.84%
1.35%
1.57%
-10.80%
3.12%
0.35%
4.32%
6.01%
As of 12/31/2022
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asia Growth Fund - MPACX
10/31/2003
MPACX
-1.19%
10.50%
-33.12%
-33.12%
-5.73%
-2.41%
4.19%
6.76%
MSCI All Country Asia Pacific Index
-0.21%
12.52%
-16.92%
-16.92%
-0.48%
0.47%
4.64%
5.97%
For the years ended December 31st
Name
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Matthews Asia Growth Fund - MPACX
MPACX
-33.12%
-14.65%
46.76%
26.18%
-16.25%
39.39%
0.92%
-0.05%
1.49%
19.35%
MSCI All Country Asia Pacific Index
-16.92%
-1.19%
20.07%
19.74%
-13.25%
32.04%
5.21%
-1.68%
0.29%
12.19%
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 $10,000 Investment Since Inception
(as of 12/31/2022)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
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 and manages the firm’s Asia Growth and Japan Strategies, and co-manages the firm’s Asia Innovators Strategy. 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.
Michael Oh is a Portfolio Manager at Matthews Asia and manages the firm’s Asia Innovators and Korea Strategies and co-manages the Asia Growth Strategy. Michael joined Matthews Asia in 2000 and has built his investment career at the firm. Michael was promoted from Research Analyst to Assistant Portfolio Manager in 2003. In 2006 and 2007, he was promoted to Lead Manager of the Matthews Asia Innovators Strategy and the Matthews Korea Strategy, respectively. From 2000-2003, Michael’s research focused on the technology sector supporting multiple strategies managed by the founders of the firm. As a research analyst, he contributed investment ideas to the broader Matthews Asia investment teams. Michael received a B.A. in Political Economy of Industrial Societies from the University of California, Berkeley. He is fluent in Korean.
Portfolio Characteristics
(as of 12/31/2022)
Fund
Benchmark
Number of Positions
45
1,488
Weighted Average Market Cap
$61.3 billion
$77.4 billion
Active Share
86.2
n.a.
P/E using FY1 estimates
22.0x
12.1x
P/E using FY2 estimates
19.7x
12.1x
Price/Cash Flow
18.0
7.3
Price/Book
3.1
1.4
Return On Equity
6.9
14.5
EPS Growth (3 Yr)
0.8%
7.6%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 12/31/2022)
Category
3YR Return Metric
Alpha
-4.31%
Beta
1.08
Upside Capture
99.59%
Downside Capture
117.28%
Sharpe Ratio
-0.27
Information Ratio
-0.42
Tracking Error
12.61%
R²
71.65
-4.31%
Alpha
1.08
Beta
99.59%
Upside Capture
117.28%
Downside Capture
-0.27
Sharpe Ratio
-0.42
Information Ratio
12.61%
Tracking Error
71.65
R²
Fund Risk Metrics are reflective of Investor share class.
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 12/31/2022)
Sector Allocation
Country Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Health Care
30.6
6.8
23.8
Consumer Discretionary
18.8
14.7
4.1
Financials
13.5
19.8
-6.3
Industrials
9.5
11.5
-2.0
Communication Services
9.4
8.6
0.8
Information Technology
8.9
16.3
-7.4
Consumer Staples
4.5
5.8
-1.3
Energy
2.6
3.1
-0.5
Materials
2.0
7.4
-5.4
Real Estate
0.0
3.9
-3.9
Utilities
0.0
2.3
-2.3
Cash and Other Assets, Less Liabilities
0.1
0.0
0.1
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Country
Fund
Benchmark
Difference
China/Hong Kong
39.0
25.1
13.9
Japan
30.8
31.6
-0.8
India
13.6
9.2
4.4
Australia
5.6
11.4
-5.8
Indonesia
5.2
1.2
4.0
United States
3.5
0.0
3.5
Vietnam
1.2
0.0
1.2
Singapore
1.0
2.2
-1.2
Taiwan
0.0
8.7
-8.7
South Korea
0.0
7.2
-7.2
Thailand
0.0
1.4
-1.4
Malaysia
0.0
1.0
-1.0
Philippines
0.0
0.5
-0.5
New Zealand
0.0
0.3
-0.3
Cash and Other Assets, Less Liabilities
0.1
0.0
0.1
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
57.9
56.8
1.1
Large Cap ($10B-$25B)
14.9
23.2
-8.3
Mid Cap ($3B-$10B)
19.0
19.1
-0.1
Small Cap (under $3B)
8.1
0.9
7.2
Cash and Other Assets, Less Liabilities
0.1
0.0
0.1
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, 2022, the Matthews Asia Growth Fund returned -33.12% (Investor Class) and -32.99% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned -16.92% over the same period. For the fourth quarter, the Fund returned 10.50% (Investor Class) and 10.58% (Institutional Class), while the benchmark returned 12.52%.
Market Environment:
2022 was a difficult year for growth investors globally—though it played out differently in Asian markets versus the U.S. and elsewhere. As inflation concerns increased early in the year, value stocks staged a tremendous rally globally. But for the next two quarters this trend moderated in Asian markets where inflation remained relatively tamer. In the fourth quarter, we saw a modest rally in Asian growth stocks—particularly after the Chinese government’s announcement in December that it planned to dismantle its zero-COVID policy. However, this rally was insufficient to erase calendar-year losses.
Another major factor for Asian markets in 2022 was the Japanese yen, which weakened significantly as much of the developed world raised interest rates to fight inflation while the Bank of Japan maintained its highly accommodative stance. The weak yen weighed on Japanese markets, which fell 16% in the year.
Performance Contributors and Detractors:
In one of the most challenging years we’ve experienced as investors, relative performance was significantly tested. At the country level, our stock selection in China/Hong Kong was the biggest detractor to performance in 2022 as our holdings encountered multiple simultaneous headwinds in the form of their growth orientation, technology focus and the negative sentiment resulting from ongoing political tensions between the U.S. and China. Stock selection in Japan was also a big detractor as low inflation persisted until late in the year and a weak yen weighed on both the economy and markets. Conversely, our lack of exposure in South Korea and underweight in Taiwan were top contributors to performance. The Fund also benefited from its overweight position and stock selection in Indonesia, which has been a relative bright spot in 2022 given its lower exposure to growth industries like information technology (IT) and communication services.
At the sector level, our stock selection in consumer discretionary was the biggest detractor while stock selection in IT and communication services also detracted from performance. Many of our holdings in these sectors—and in health care where allocation was a detractor as well as stock selection—were pressured not just by their growth orientation but also because many are Chinese.
At the holdings level, among the Fund’s bottom contributors were XPeng and Sea. Chinese electric vehicle (EV) maker XPeng was until recently one of only a few EV companies in China and serving the upper-middle segment of the market. However, 2022 saw a meaningful increase in competition which has pressured the company’s shares.
Singapore-based e-commerce and gaming platform Sea, operating mainly in Southeast Asia, experienced a decline in subscriptions as economies normalized in the wake of COVID which hurt the company’s revenues and weighed on shares. However, we remain constructive on the outlook given Sea’s dominant market share in its existing markets and growing share in new emerging markets like Brazil.
Among the Fund’s top individual contributors were Daiichi Sankyo and Bank Rakyat Indonesia. Japanese pharmaceutical Daiichi Sankyo produces Enhertu, one of the world’s leading breast cancer drugs. We are attracted to the company’s solid fundamentals and the positive outlook for Enhertu. Bank Rakyat, one of the leading Asian banks, benefited from the interest rate environment in 2022. As a growth-oriented bank it has been a long-term holding in our portfolio and we maintain our conviction in the outlook.
Notable Portfolio Changes:
In anticipation of a normalizing economic environment in a post-zero-COVID China, we shifted some capital in the fourth quarter to Chinese, growth-oriented names—including technology giants Alibaba and JD.com. We also introduced a position in Japanese commercial bank Sumitomo Mitsui as we anticipate the beginning of a potential rate-hike cycle in Japan. The bank’s fundamentals are solid and we capitalized on an attractive valuation to purchase shares.
We funded these purchases with several sales, including Bajaj Finance in India, which we trimmed as the position size had increased in our portfolio. We exited Ono Pharmaceutical in Japan, whose flagship cancer drug Opdivo has seen slowing sales as its growth matures. We also exited our position in XPeng given the increased competition it faces.
Outlook:
As we enter 2023, we see reasons for optimism. The end of zero-COVID in China should reverse the relative economic and consumption malaise the country has faced in recent years. Increased economic activity in China could also prompt a bounce-back among growth stocks, whose valuations have decreased meaningfully thanks to the value rally in the first quarter of last year.
We think Japan could be worth watching too, as the country possibly finally starts to see signs of wage inflation which, in contrast to much of the world, would be an overall economic positive for a nation that has faced over two decades of economic stagnation and low inflation. We also anticipate moderately rising interest rates as the new Bank of Japan governor pivots toward a slightly more hawkish stance—which would in turn help stabilize the yen. Given overall solid fundamentals and still-cheap valuations, this could prove an attractive combination for investors in 2023.
India remains on solid economic footing—though nascent signs of inflation thanks to high oil prices could mean higher government deficits and pose an economic headwind. In our view, India’s economic outlook will hinge heavily on what happens with domestic interest rates. That said, for investors willing to be selective, India continues to offer compelling growth-oriented investing opportunities.
Though we have no way to forecast the outcome of major, ongoing global events such as the war in Ukraine, we believe the outlook for 2023 is relatively favorable. That said, it’s a rare year which doesn’t present investors with relatively meaningful surprises, and as ever, we will remain prepared to pivot accordingly.
Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 12/31/2022
1YR
3YR
5YR
10YR
Since Inception
Inception Date
-33.12%
-5.73%
-2.41%
4.19%
6.76%
10/31/2003
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
1.07%
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 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 MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, 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, 2022
For the year ending December 31, 2022, the Matthews Asia Growth Fund returned -33.12% (Investor Class) and -32.99% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned -16.92% over the same period. For the fourth quarter, the Fund returned 10.50% (Investor Class) and 10.58% (Institutional Class), while the benchmark returned 12.52%.
Market Environment:
2022 was a difficult year for growth investors globally—though it played out differently in Asian markets versus the U.S. and elsewhere. As inflation concerns increased early in the year, value stocks staged a tremendous rally globally. But for the next two quarters this trend moderated in Asian markets where inflation remained relatively tamer. In the fourth quarter, we saw a modest rally in Asian growth stocks—particularly after the Chinese government’s announcement in December that it planned to dismantle its zero-COVID policy. However, this rally was insufficient to erase calendar-year losses.
Another major factor for Asian markets in 2022 was the Japanese yen, which weakened significantly as much of the developed world raised interest rates to fight inflation while the Bank of Japan maintained its highly accommodative stance. The weak yen weighed on Japanese markets, which fell 16% in the year.
Performance Contributors and Detractors:
In one of the most challenging years we’ve experienced as investors, relative performance was significantly tested. At the country level, our stock selection in China/Hong Kong was the biggest detractor to performance in 2022 as our holdings encountered multiple simultaneous headwinds in the form of their growth orientation, technology focus and the negative sentiment resulting from ongoing political tensions between the U.S. and China. Stock selection in Japan was also a big detractor as low inflation persisted until late in the year and a weak yen weighed on both the economy and markets. Conversely, our lack of exposure in South Korea and underweight in Taiwan were top contributors to performance. The Fund also benefited from its overweight position and stock selection in Indonesia, which has been a relative bright spot in 2022 given its lower exposure to growth industries like information technology (IT) and communication services.
At the sector level, our stock selection in consumer discretionary was the biggest detractor while stock selection in IT and communication services also detracted from performance. Many of our holdings in these sectors—and in health care where allocation was a detractor as well as stock selection—were pressured not just by their growth orientation but also because many are Chinese.
At the holdings level, among the Fund’s bottom contributors were XPeng and Sea. Chinese electric vehicle (EV) maker XPeng was until recently one of only a few EV companies in China and serving the upper-middle segment of the market. However, 2022 saw a meaningful increase in competition which has pressured the company’s shares.
Singapore-based e-commerce and gaming platform Sea, operating mainly in Southeast Asia, experienced a decline in subscriptions as economies normalized in the wake of COVID which hurt the company’s revenues and weighed on shares. However, we remain constructive on the outlook given Sea’s dominant market share in its existing markets and growing share in new emerging markets like Brazil.
Among the Fund’s top individual contributors were Daiichi Sankyo and Bank Rakyat Indonesia. Japanese pharmaceutical Daiichi Sankyo produces Enhertu, one of the world’s leading breast cancer drugs. We are attracted to the company’s solid fundamentals and the positive outlook for Enhertu. Bank Rakyat, one of the leading Asian banks, benefited from the interest rate environment in 2022. As a growth-oriented bank it has been a long-term holding in our portfolio and we maintain our conviction in the outlook.
Notable Portfolio Changes:
In anticipation of a normalizing economic environment in a post-zero-COVID China, we shifted some capital in the fourth quarter to Chinese, growth-oriented names—including technology giants Alibaba and JD.com. We also introduced a position in Japanese commercial bank Sumitomo Mitsui as we anticipate the beginning of a potential rate-hike cycle in Japan. The bank’s fundamentals are solid and we capitalized on an attractive valuation to purchase shares.
We funded these purchases with several sales, including Bajaj Finance in India, which we trimmed as the position size had increased in our portfolio. We exited Ono Pharmaceutical in Japan, whose flagship cancer drug Opdivo has seen slowing sales as its growth matures. We also exited our position in XPeng given the increased competition it faces.
Outlook:
As we enter 2023, we see reasons for optimism. The end of zero-COVID in China should reverse the relative economic and consumption malaise the country has faced in recent years. Increased economic activity in China could also prompt a bounce-back among growth stocks, whose valuations have decreased meaningfully thanks to the value rally in the first quarter of last year.
We think Japan could be worth watching too, as the country possibly finally starts to see signs of wage inflation which, in contrast to much of the world, would be an overall economic positive for a nation that has faced over two decades of economic stagnation and low inflation. We also anticipate moderately rising interest rates as the new Bank of Japan governor pivots toward a slightly more hawkish stance—which would in turn help stabilize the yen. Given overall solid fundamentals and still-cheap valuations, this could prove an attractive combination for investors in 2023.
India remains on solid economic footing—though nascent signs of inflation thanks to high oil prices could mean higher government deficits and pose an economic headwind. In our view, India’s economic outlook will hinge heavily on what happens with domestic interest rates. That said, for investors willing to be selective, India continues to offer compelling growth-oriented investing opportunities.
Though we have no way to forecast the outcome of major, ongoing global events such as the war in Ukraine, we believe the outlook for 2023 is relatively favorable. That said, it’s a rare year which doesn’t present investors with relatively meaningful surprises, and as ever, we will remain prepared to pivot accordingly.
Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 12/31/2022
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
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.