Market Environment
- Chinese stocks were volatile in the first quarter, and we saw steep falls particularly in some of the smaller indexes. Chinese equities continued to face pressure because of lingering, broad-based concerns including the implications surrounding the late year U.S. elections, deflationary pressures driven by excess capacity, the lack of large-scale policy support for the property sector and the sluggishness in the recovery in consumer demand.
- Economic recovery has been much weaker than the market expected and there are only incremental signs that China's property market is beginning to turn a corner.
- Some of the government's efforts, however, have started to gain traction, such as initiatives to support the stock market by buying equities and restricting certain stock sales and short selling. These efforts helped stabilize the market in February and supported a short-lived rally.
Contributors and Detractors:
- For the quarter ended March 31, 2024, the China Fund returned -2.75%, (Investor Class) and -2.76% (Institutional Class) while its benchmark, the MSCI China Index, returned -2.19% over the same period.
- The top three contributors to relative performance, on a sector basis, were consumer discretionary and industrials due to stock selection, and health care due to an underweight allocation. The top three detractors to relative performance were financials due to stock selection, and communication services and materials due to an underweight allocation.
- The top three contributors to absolute performance included Meituan (HKSE:03690, Financial), China's largest food delivery service and internet platform company, China Merchants Bank (SHSE:600036, Financial), a premiere banking franchise, and PetroChina (SHSE:601857, Financial), one of the country's largest state-owned oil and gas companies. The three largest detractors to performance included Pinduoduo (PDD, Financial), a leading e-commerce platform that started its businesses with a focus on lower-tier city, price sensitive consumers, Wuxi Biologics (HKSE:02269, Financial), a pharmaceutical company, and China International Capital Corp. (HKSE:03908, Financial), a brokerage firm.
Outlook
- Looking ahead, the question remains as to whether China's equity markets are charting a sustainable path of recovery. Notwithstanding the well-known concerns, investor sentiment is improving toward China based upon perceived risk/reward.
- Marginal year-over-year improvement in earnings expectations combined with stock multiples trading at roughly a 50% discount to February 2021 highs is giving investors confidence that current valuations provide an adequate cushion for unforeseen risks.
- The calculus suggests that even with little to no improvement in sentiment or stock multiples, consensus estimates in year-over-year earnings growth could lead to attractive equity returns.
- Thus, we are still in a cautious frame of mind, tinged with some optimism. While last year we think Chinese government policy over promised and underachieved, this year we think the government is seeking to under promise and overachieve. One potentially destabilizing variable on our radar is geopolitics, particularly with the U.S. election approaching.
View the Fund's Top 10 holdings as of March 31, 2024. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MCHFX as of 03/31/2024
| 1YR | 3YR | 5YR | 10YR | SINCE INCEPTION | INCEPTION DATE |
|---|---|---|---|---|---|
| -21.77% | -20.20% | -4.17% | 2.45% | 7.03% | 02/19/1998 |
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.
