Overall Morningstar RatingTM (As of 12/31/2022)
Based on risk-adjusted return among 21 funds in the India Equity Category
MutualFund
Snapshot
Unconstrained all-cap strategy focused on companies with a sustainable competitive edge and pricing power, which are able to perform throughout economic cycles
Fundamental bottom-up approach to seek well-run entrepreneurial companies with sustainable organic growth and trustworthy managements
Bias toward businesses that cater to rising domestic consumer demand and to policy-independent sectors
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. 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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
These and other risks associated with investing in the Fund can be found in the
prospectus.
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. 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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
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 India Fund - MINDX
10/31/2005
MINDX
-1.69%
-7.29%
-2.49%
-6.45%
7.90%
2.01%
8.79%
9.32%
S&P Bombay Stock Exchange 100 Index
-3.08%
-9.17%
-4.54%
-4.60%
12.36%
6.33%
8.76%
9.74%
As of 12/31/2022
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund - MINDX
10/31/2005
MINDX
-4.92%
0.58%
-9.92%
-9.92%
7.41%
2.00%
8.70%
9.57%
S&P Bombay Stock Exchange 100 Index
-4.85%
3.40%
-4.53%
-4.53%
10.51%
6.60%
8.88%
10.13%
For the years ended December 31st
Name
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Matthews India Fund - MINDX
MINDX
-9.92%
18.11%
16.45%
-0.88%
-10.09%
35.79%
-1.23%
0.90%
63.71%
-5.90%
S&P Bombay Stock Exchange 100 Index
-4.53%
24.08%
13.92%
8.53%
-6.00%
41.88%
2.32%
-6.41%
31.40%
-4.70%
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.
Peeyush Mittal is a Portfolio Manager at Matthews Asia and manages the firm's India Strategy. Prior to joining the firm in 2015, he spent over three years at Franklin Templeton Asset Management India, most recently as a Senior Research Analyst. Previously, he was with Deutsche Asset & Wealth Management New York, from 2009 to 2011, researching U.S. and European stocks in the industrials and materials sectors. Peeyush began his career in 2003 with Scot Forge as an Industrial Engineer, and was responsible for implementing Lean Manufacturing systems on the production shop floor. Peeyush earned his M.B.A from The University of Chicago Booth School of Business. He received a Master of Science in Industrial Engineering from The Ohio State University and received a Bachelor of Technology in Metallurgical Engineering from The Indian Institute of Technology Madras. He is fluent in Hindi.
Sharat Shroff is a Portfolio Manager at Matthews Asia and manages the firm’s Pacific Tiger and Asia ex Japan Total Return Equity Strategies and co-manages the India Strategy. Prior to joining Matthews Asia in 2005, Sharat worked in the San Francisco and Hong Kong offices of Morgan Stanley as an Equity Research Associate. Sharat received a Bachelor of Technology from the Institute of Technology in Varanasi, India and an MBA from the Indian Institute of Management, in Calcutta, India. He is fluent in Hindi and Bengali.
Portfolio Characteristics
(as of 12/31/2022)
Fund
Benchmark
Number of Positions
48
101
Weighted Average Market Cap
$45.2 billion
$63.2 billion
Active Share
53.3
n.a.
P/E using FY1 estimates
24.4x
22.6x
P/E using FY2 estimates
20.1x
19.1x
Price/Cash Flow
n.a.
14.7
Price/Book
3.9
3.3
Return On Equity
16.3
18.1
EPS Growth (3 Yr)
13.6%
21.1%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 12/31/2022)
Category
3YR Return Metric
Alpha
-2.22%
Beta
0.96
Upside Capture
77.19%
Downside Capture
89.75%
Sharpe Ratio
0.27
Information Ratio
-0.49
Tracking Error
6.33%
R²
93.74
-2.22%
Alpha
0.96
Beta
77.19%
Upside Capture
89.75%
Downside Capture
0.27
Sharpe Ratio
-0.49
Information Ratio
6.33%
Tracking Error
93.74
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
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
41.3
35.5
5.8
Consumer Discretionary
12.6
7.4
5.2
Information Technology
12.4
12.6
-0.2
Consumer Staples
9.1
9.2
-0.1
Materials
6.9
8.3
-1.4
Industrials
6.7
6.3
0.4
Health Care
5.7
3.6
2.1
Energy
3.3
11.2
-7.9
Communication Services
0.5
2.9
-2.4
Utilities
0.0
2.5
-2.5
Real Estate
0.0
0.4
-0.4
Cash and Other Assets, Less Liabilities
1.5
0.0
1.5
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
51.9
68.5
-16.6
Large Cap ($10B-$25B)
10.9
19.5
-8.6
Mid Cap ($3B-$10B)
23.1
11.4
11.7
Small Cap (under $3B)
12.6
0.6
12.0
Cash and Other Assets, Less Liabilities
1.5
0.0
1.5
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 India Fund returned -9.92% (Investor Class) and -9.83% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned -4.53% over the same period. For the fourth quarter, the Fund returned 0.58% (Investor Class) and 0.57% (Institutional Class), while the benchmark returned 3.40%.
Market Environment:
Central banks maintained their war against inflation with higher interest rates globally during 2022. Even though inflation has generally subsided in the past few months, the pace of moderation has been behind the estimations of most. As a consequence, it’s expected that higher rates will be here for longer even as the pace of incremental rate hikes slows.
To complicate this dynamic, we’re also seeing China remove its entrenched zero-COVID restrictions. As activity in the world’s second-largest economic power starts to normalize it will help improve global gross domestic production (GDP) but it’s also likely to exert upward pressure on inflation. Hence, it’s reasonable to assume that central banks are unlikely to start to ease monetary policy anytime soon.
In India, the rupee continues to be range-bound but given the current interest rate policy it remains to be seen if that will stay the case. The differential between central bank rate policy in the U.S. and in India is at its lowest for the last 15 years, which suggests that outflow of dollar reserves from India will remain a risk in a near to medium term and the rupee will continue to be volatile.
Separately, consumption in India continues to moderate. Amid inflationary pressures, consumption is negatively impacted in lower-income sections of the economy. However, we are beginning to see some pick-up in nominal wage growth in rural India along with higher remittance which should help alleviate a cash crunch in non-urban areas of the country.
Performance Contributors and Detractors:
At the sector level, our underweight in energy was the biggest contributor to relative performance in the year as oil marketing firm margins were negatively impacted by the high price of oil. Our overweight to industrials was also a positive contributor to performance as manufacturing activity in India continues to gather pace. On the other hand, our stock selection within consumer staples was the biggest detractor to performance. Stock selection within information technology, consumer discretionary and financials was also a detractor though the negative impact from financials was mitigated to a degree by our overweight position.
In the last quarter, our allocation and stock selection in consumer staples and communication services was the biggest contributor. On the flip side, allocation and stock selection in consumer discretionary was the biggest detractor, impacted by our holdings in the interest rate-sensitive autos segment.
At the holdings level, Lemon Tree Hotels and Cummins India were among the top contributors to performance for the year. Cummins is one of the largest manufacturers of engines globally and within India, it is a leading provider of back-up power generating units. A revival in infrastructure and real estate along with robust exports in India helped the company post robust revenue and earnings growth.
Conversely, Infosys and Tata Consultancy Services were among the biggest detractors and were hurt by softening demand from Western and international clients. Restaurant Brands Asia was also a detractor. While the company continues to grow well and execute on plans for network expansion, high inflation resulted in profit margin-performance being slightly behind investor expectation which negatively impacted performance.
Notable Portfolio Changes:
We continued to consolidate the portfolio and reduce the number of holdings in the Fund in favor of companies which we think are more insulated from external headwinds and where growth expectations are reasonable. To this end, we exited Gujarat Fluorochemicals, a leading producer of fluoropolymers. The company has benefited from higher pricing for many of its manufactured products due to the pandemic restrictions in China but with China reopening we think some of those tailwinds will convert into headwinds. We also exited ABB India. The engineering and construction company continues to do well; however the valuation is very rich and with global GDP slowing down we believe it is prudent to exit.
We initiated a position in Syngene International, a contract research service (CRS) provider. Syngene continues to benefit from greater outsourcing of research projects by big pharma globally. The company also recently got certification from the U.S. Food and Drug Administration (FDA) to commence operations of its biologics manufacturing facility, which would mark the beginning of its custom development and manufacturing operations (CDMO). The CDMO business will help Syngene deliver higher growth and diversify its business model, in our view.
Outlook:
We continue to remain cautious for the near-term outlook. While inflation has peaked and it seems like we are nearing the end of rate tightening globally, we expect rates are going to remain higher for longer and consequently it is going to have a negative impact on demand for goods and services globally. Reduced economic activity globally is going to have a negative impact on exports from India in the near to medium term. Amid low exports and higher rates in the developed world, the rupee may continue to have a depreciation bias unless oil prices decline.
Despite the external headwinds, we think the financial services sector in India continues to be in a very healthy state. Even if we have a slowdown, we don’t expect private and public sector banks to have credit quality challenges which would mean any slowdown would be short lived and would not lead to market panic. Banks, however, are increasing deposit rates and these are becoming attractive from an investment perspective. We think this is likely to pose the biggest risk to markets in India in the near term given the fact that current equity valuations leave little room to absorb negative surprises.
India’s government will also shortly be presenting its budget and since there are general elections next year this event will take on greater importance. There are widespread expectations that the government will announce an increase in spending at the grass roots and rural level where large chunks of the population live. While this would be helpful in improving consumption, a higher-than-normal fiscal deficit will only heighten existing inflationary challenges. Another cause of concern relates to expectations that the government is likely to raise long-term capital gains tax on equity investments from current 10% to 20%. If that were to happen it will likely create negative sentiment in the market at least in the interim.
Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MINDX as of 12/31/2022
1YR
3YR
5YR
10YR
Since Inception
Inception Date
-9.92%
7.41%
2.00%
8.70%
9.57%
10/31/2005
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
1.10%
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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
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 India Fund returned -9.92% (Investor Class) and -9.83% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned -4.53% over the same period. For the fourth quarter, the Fund returned 0.58% (Investor Class) and 0.57% (Institutional Class), while the benchmark returned 3.40%.
Market Environment:
Central banks maintained their war against inflation with higher interest rates globally during 2022. Even though inflation has generally subsided in the past few months, the pace of moderation has been behind the estimations of most. As a consequence, it’s expected that higher rates will be here for longer even as the pace of incremental rate hikes slows.
To complicate this dynamic, we’re also seeing China remove its entrenched zero-COVID restrictions. As activity in the world’s second-largest economic power starts to normalize it will help improve global gross domestic production (GDP) but it’s also likely to exert upward pressure on inflation. Hence, it’s reasonable to assume that central banks are unlikely to start to ease monetary policy anytime soon.
In India, the rupee continues to be range-bound but given the current interest rate policy it remains to be seen if that will stay the case. The differential between central bank rate policy in the U.S. and in India is at its lowest for the last 15 years, which suggests that outflow of dollar reserves from India will remain a risk in a near to medium term and the rupee will continue to be volatile.
Separately, consumption in India continues to moderate. Amid inflationary pressures, consumption is negatively impacted in lower-income sections of the economy. However, we are beginning to see some pick-up in nominal wage growth in rural India along with higher remittance which should help alleviate a cash crunch in non-urban areas of the country.
Performance Contributors and Detractors:
At the sector level, our underweight in energy was the biggest contributor to relative performance in the year as oil marketing firm margins were negatively impacted by the high price of oil. Our overweight to industrials was also a positive contributor to performance as manufacturing activity in India continues to gather pace. On the other hand, our stock selection within consumer staples was the biggest detractor to performance. Stock selection within information technology, consumer discretionary and financials was also a detractor though the negative impact from financials was mitigated to a degree by our overweight position.
In the last quarter, our allocation and stock selection in consumer staples and communication services was the biggest contributor. On the flip side, allocation and stock selection in consumer discretionary was the biggest detractor, impacted by our holdings in the interest rate-sensitive autos segment.
At the holdings level, Lemon Tree Hotels and Cummins India were among the top contributors to performance for the year. Cummins is one of the largest manufacturers of engines globally and within India, it is a leading provider of back-up power generating units. A revival in infrastructure and real estate along with robust exports in India helped the company post robust revenue and earnings growth.
Conversely, Infosys and Tata Consultancy Services were among the biggest detractors and were hurt by softening demand from Western and international clients. Restaurant Brands Asia was also a detractor. While the company continues to grow well and execute on plans for network expansion, high inflation resulted in profit margin-performance being slightly behind investor expectation which negatively impacted performance.
Notable Portfolio Changes:
We continued to consolidate the portfolio and reduce the number of holdings in the Fund in favor of companies which we think are more insulated from external headwinds and where growth expectations are reasonable. To this end, we exited Gujarat Fluorochemicals, a leading producer of fluoropolymers. The company has benefited from higher pricing for many of its manufactured products due to the pandemic restrictions in China but with China reopening we think some of those tailwinds will convert into headwinds. We also exited ABB India. The engineering and construction company continues to do well; however the valuation is very rich and with global GDP slowing down we believe it is prudent to exit.
We initiated a position in Syngene International, a contract research service (CRS) provider. Syngene continues to benefit from greater outsourcing of research projects by big pharma globally. The company also recently got certification from the U.S. Food and Drug Administration (FDA) to commence operations of its biologics manufacturing facility, which would mark the beginning of its custom development and manufacturing operations (CDMO). The CDMO business will help Syngene deliver higher growth and diversify its business model, in our view.
Outlook:
We continue to remain cautious for the near-term outlook. While inflation has peaked and it seems like we are nearing the end of rate tightening globally, we expect rates are going to remain higher for longer and consequently it is going to have a negative impact on demand for goods and services globally. Reduced economic activity globally is going to have a negative impact on exports from India in the near to medium term. Amid low exports and higher rates in the developed world, the rupee may continue to have a depreciation bias unless oil prices decline.
Despite the external headwinds, we think the financial services sector in India continues to be in a very healthy state. Even if we have a slowdown, we don’t expect private and public sector banks to have credit quality challenges which would mean any slowdown would be short lived and would not lead to market panic. Banks, however, are increasing deposit rates and these are becoming attractive from an investment perspective. We think this is likely to pose the biggest risk to markets in India in the near term given the fact that current equity valuations leave little room to absorb negative surprises.
India’s government will also shortly be presenting its budget and since there are general elections next year this event will take on greater importance. There are widespread expectations that the government will announce an increase in spending at the grass roots and rural level where large chunks of the population live. While this would be helpful in improving consumption, a higher-than-normal fiscal deficit will only heighten existing inflationary challenges. Another cause of concern relates to expectations that the government is likely to raise long-term capital gains tax on equity investments from current 10% to 20%. If that were to happen it will likely create negative sentiment in the market at least in the interim.
Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MINDX 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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.