Matthews Asia ex Japan Dividend Fund

Period ended 30 June 2019

For the first half of 2019, the Matthews Asia ex Japan Dividend Fund returned 12.89%, outperforming its benchmark, the MSCI All Country Asia ex Japan Index, which returned 10.83% over the same period. For the quarter ending 30 June, the Fund returned 1.83% while its benchmark returned -0.56%.

Market Environment:

After a strong rally in the first quarter of 2019, Asian equities were unable to sustain the positive momentum during the second quarter. A sudden collapse in U.S.—China trade negotiations weighed heavily on the market. Together with the renewed concerns over the strength of the global economy, market volatility spiked. It was not until June, when central banks globally signaled a readiness to support growth via monetary easing, that Asia's markets began to stabilize again. 

Performance Contributors and Detractors:

Haidilao International Holding, China's leading hot pot restaurant chain operator, was the top contributor to Fund performance in the first half of the year. This company has a unique culture of retaining customer loyalty and training and promoting its employees, and the market has found the firm's sustainable expansion potential since last year's IPO to be quite exciting. Wuliangye Yibin, the leading high-end “baijiu” (Chinese white liquor) maker was another major contributor to Fund performance during the first six months of the year as the company endeavored to close its product price gap with top competitor Kweichow Moutai. Wuliangye Yibin recently launched a new version of its main product with some success, and has been warmly welcomed by investors.
China Resources Power Holdings, an independent power producer, was the largest detractor to performance as its management abruptly abandoned its dividend commitment to speed its push into renewable energies. We decided to sell the position.
During the first six months of the year, the Fund's outperformance was mostly driven by security selection. Our stock selection among the consumer staples sector was the main performance contributor. On a country basis, our security selection in the China/Hong Kong market was the main performance contributor, while our allocation to Vietnam was the largest detractor to performance.

Notable Portfolio Changes:

During the second quarter, we initiated a position in Yixintang Pharmaceutical Group, the leading pharmaceutical retail chain in southwestern China. We believe the company is well-positioned to grow revenues and earnings from China's changing landscape of prescription drug distribution.
The Fund also participated in the Hong Kong IPO of China East Education Holdings during the quarter. China East Education is known for its strong niche in culinary education, training chefs for the country's booming dining industry, and it is continuing to research other professional services areas for growth. We believe professional talent is critical for China to develop its service industry. As the government has underinvested in this area, private companies could add strong value.
We exited our positions in China Resources Power, TOA Paint Thailand, HRnetGroup as their business fundamentals no longer supported our initial investment thesis.


As China and the U.S. restarted trade negotiations in early July, Asia's markets seemed to experience temporary relief from tensions. The medium- to long-term outlook for these bilateral relations, however, is still cloudy given the structural differences between the two countries' political systems and economic growth models. Despite this uncertainty, policymakers in both Asia and the U.S. have signaled a willingness to use policy-support measures to address any significant slowdown. In the meantime, with investor expectations now reset mostly due to macroeconomic concerns and on Asia's equity valuations continuing to trade below long-term averages, we remain constructive that, from a bottom-up perspective, Asia's markets currently offer attractive opportunities for long-term investors.

Rolling 12 Month Returns for the period ended 30 June 2019
Matthews Asia ex Japan Dividend Fund 2019 2018 2017 2016 2015
I (Acc) (USD) 1.70% 18.38% 23.33% n.a. n.a.
MSCI All Country Asia ex Japan Index (USD) -0.18% 10.21% 27.06% n.a. n.a.
I (Acc) (GBP) 5.43% 16.83% 27.51% n.a. n.a.
MSCI All Country Asia ex Japan Index (GBP) 3.55% 8.43% 30.76% 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