Matthews Asia Dividend Fund

Period ended 30 September 2019

For the quarter ending 30 September 2019, the Matthews Asia Dividend Fund returned -1.96%, while its benchmark, the MSCI All Country Asia Pacific Index, returned -1.24%.

Market Environment:

Asian markets remained volatile during the third quarter amid uncertainty generated by U.S.—China trade tensions. Political unrest in Hong Kong also weighed on China/Hong Kong markets during the quarter, further dampening investor sentiment. On a positive note, central bankers and policymakers in many parts of Asia started shifting toward easing policies to help boost growth with both interest-rate cuts and fiscal stimulus measures. Corporate earnings for Asia, while still in the negative growth territory on a year-over-year basis, started showing signs of bottoming.

Performance Contributors and Detractors:

During the third quarter, a top performance contributor to the Fund was Minth Group, an auto-parts company in China. As discussed in previous commentary, Minth's business growth is being disrupted by the current severe downturn in China's automobile industry. Together with market concerns on its U.S. export business exposed to the trade war, Minth's shares were aggressively sold off over past 12 months, becoming a main performance detractor. Just as overall sentiment turned very bearish, however, Minth's first-half 2019 earnings, despite registering a 9% year-over-year decline, was actually an upside surprise to the market consensus. Both a sequential recovery of its gross margin, an importantly operating indicator, and a sustained growth of its overseas operations, helped the company to partially offset the tough domestic business. Its share price staged a relief rally.
On the flip side, some of the Fund's holdings in cyclical stocks, including United Tractors, an Indonesian mining equipment distribution and contracting business, and LG Chem, a South Korean petrochemical major and a global leading EV battery manufacturer, were among the top detractors to performance during the quarter. Both companies' near-term earnings delivery was negatively impacted by weak commodity prices and an uncertain demand outlook.

Notable Portfolio Changes:

During the quarter, the Fund initiated several new positions, including Singapore-listed real estate investment trusts such as NetLink NBN Trust, a broadband network infrastructure asset owner; CapitaLand Commercial Trust, an office investment property landlord; and Keppel DC, REIT, a data-center portfolio owner. All three stocks provided significant yield pickup in a low-interest-rate environment, and at the same time they still have company-specific growth drivers that can make them a potentially attractive total-return investment. In addition, we also added two new dividend growth stocks, both in the consumer discretionary sector, namely Zhongsheng Group, a Chinese auto dealership business, and China East Education, the largest vocational education business in China that held an initial public offering in Hong Kong. We believe both companies have structural growth drivers to support solid cash-flow generation and potentially significant growth in dividends.
On the other hand, the Fund exited a few companies, including Far East Horizon, Hua Hong Semiconductor and Dairy Farm. For each, we believed that changes in business fundamentals no longer supported our initial investment thesis. We decided to redeploy the capital, including funding some new positions.


A protracted U.S.—China trade war continues to be the biggest overhang for Asian equities. Notwithstanding, policymakers in both Asia and the U.S. are deploying policy tools to address any significant slowdown. From a bottom-up perspective focusing on company fundamentals, the current macro and geopolitical uncertainties are creating compelling long-term investment opportunities in Asia.

Rolling 12 Month Returns for the period ended 30 September 2019
Matthews Asia Dividend Fund 2019 2018 2017 2016 2015
I (Acc) (USD) -6.96% 5.38% 15.01% 18.02% -4.99%
MSCI All Country Asia Pacific Index (USD) -2.60% 5.36% 18.41% 16.02% -9.37%
I (Acc) (GBP) -1.48% 8.18% 11.33% 38.22% 1.24%
MSCI All Country Asia Pacific Index (GBP) 3.07% 8.39% 14.64% 35.29% -3.00%
I (Acc) (EUR) -1.12% 7.45% n.a. n.a. n.a.
MSCI All Country Asia Pacific Index (EUR) 3.77% 7.23% n.a. n.a. n.a.

Risk Considerations

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. There is no guarantee that the Fund or the companies in its portfolio will pay or continue to pay dividends. These and other risks associated with investing in the Fund can be found in the Prospectus.

There is no guarantee that a company will pay or continue to increase dividends.

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