Matthews Pacific Tiger Fund
Period ended 31 March 2019
For the quarter ending 31 March 2019, the Matthews Pacific Tiger
Fund returned 7.65% while its benchmark, the MSCI All Country Asia ex Japan
Index, returned 11.45%.
equity markets rebounded in the first quarter as concerns from 2018 began to
ease. The U.S. Federal Reserve paused from making further rate hikes,
strengthening emerging market currencies. Against a backdrop of stronger
currencies and soft inflation, India's central bank had room to cut interest rates.
Elsewhere, rates held steady in Indonesia and China cut reserve rate
requirement by 1%. We expect that a supportive monetary environment could
follow in other parts of the region.
also have been bolstered by China's use of incremental stimulus. To date,
China's policymakers have employed a targeted approach to promoting growth via
infrastructure spending, tax cuts and lending support for the private sector. Market
participants seem hopeful that officials could be signaling a readiness to
deploy additional stimulus if needed. Additionally, trade tensions between the
U.S. and China lightened during the quarter, creating a consensus expectation
that a trade agreement may eventually emerge.
index provider MSCI announced it would further increase the weight factor of
Chinese domestic A-share stocks in its indexes, highlighting the importance of
domestic Chinese stocks to global investors. Turning to Southeast Asia, Vietnam
continues to attract foreign direct investment, especially from China in the
manufacturing sector. Preliminary results from elections in Thailand kept the
military junta in power, maintaining status quo. Official election results are
expected in May.
Contributors and Detractors:
generating gains during the quarter, the Fund lagged its benchmark on a
relative basis. Detracting from performance was the Fund's underweight to China
and overweight to India. Chinese equities experienced a sharp rally during the
quarter, while Indian equities ended the quarter with positive but lower
returns. Over the short term, it's natural for some country exposures within
the portfolio to outperform others and we feel very comfortable with how the
portfolio is currently allocated for the long term. We believe we have good
exposure to companies focused on Chinese domestic demand and that our India
holdings also have attractive growth potential.
to performance in the quarter included three large Chinese companies: insurance
provider PingAn, gaming and social media conglomerate Tencent and dairy
producer Yili Group. Each of these participated in China's recent market rally
and we added to these holdings over the past year. In contrast, some small- and
mid-cap stocks in the portfolio underperformed during the quarter, including Hong-Kong
listed Dairy Farm International, the Swiss company DKSH, which helps global
brands expand to Asia, and Indonesian convenience store operator Indofood.
Dairy Farm and DKSH are going through changes, including management, while
Indofood has pulled back due to weak quarterly earnings.
added a new position in Chinese beverage producer Kweichow Moutai. The firm
produces baijiu, a clear, grain-based liquor with a high alcohol content
popularly served at celebrations such as weddings and banquets. It is a unique
product with a long national heritage with an imitable aspirational positioning
in Chinese lifestyle. We were able to initiate the position at an attractive
price, gaining access to such a marquee baijiu brand in China poised to benefit
from growing domestic consumption. We are also took advantage of market
conditions and earnings-related weakness among some holdings to rotate capital within
the portfolio during the quarter.
China, policymakers have signaled expectations for healthy, but slightly slower
growth ahead. We believe China's growth will increasingly come from domestic
demand and services. This evolution is likely to lead to more sustainable
growth for China over the long term. The Southeast Asian economies remain
sluggish overall, although there are signs of normalcy in Indonesia and better
risk-reward profiles for companies in the Philippines. India will go through general
elections later this year. The elections will be an important event, but so far
they do not appear to be destabilizing.
broadly, we have a positive outlook for the region, especially given a changed
stance in Chinese policy that indicates a willingness to provide more fiscal
and monetary support. Some
risks continue to linger. Global trade is
deaccelerating, industrial activity remains soggy and demand for electronics is
slowing. These conditions create the potential for additional volatility. Over
the long term, however, we expect Asia's growth prospects to be buoyed by
rising incomes across the region, political stability and growing consumption.
We remain optimistic in our outlook for Asian equities over a full market
Rolling 12 Month Returns for the period ended 31 December 2018
|Matthews Pacific Tiger Fund
I (Acc) (USD)
MSCI All Country Asia ex Japan Index (USD)
I (Acc) (GBP)
MSCI All Country Asia ex Japan Index (GBP)
The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international and emerging market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. The Fund invests in holdings denominated in foreign currencies, and is exposed to the risk that the value of the foreign currency will increase or decrease. The Fund invests primarily in equity securities, which may result in increased volatility. These and other risks associated with investing in the Fund can be found in the Prospectus.
Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Accumulation Class Shares and has been calculated in USD. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses. Past performance information is not indicative of future performance. Investors may not get back the full amount invested.
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. Matthews International Capital Management, LLC (“Matthews Asia”) and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.
Information contained herein is sourced from Matthews Asia unless otherwise stated. The views and opinions in this commentary were as of the report date, subject to change and may not reflect the writer’s 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.
Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the risk factors.
Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg