The $778.28 million Matthews China Fund (Trades, Portfolio), part of investment firm Matthews Asia, announced on Tuesday that it acquire six stocks during the third quarter.
Matthews China investing with a “cautiously optimistic” view heading into the third quarter, saying it expected “an accommodating business climate” for the foreseeable future.
“We believe that robust consumption spending, strong infrastructure spending and strict supply-side reform have created a favorable economic environment for businesses,” managers Andrew Mattock, Winnie Chwang and Henry Zhang said in a third-quarter letter. “As a result, corporate profits and cash flows have significantly improved in the recent quarters.”
China’s GDP slipped to 6.8% growth year over year in the third quarter from 6.9% in the second quarter. The construction sector showed the weakest performance. Construction GDP growth cooled to 4.0% from 5.4%, while property growth declined to 3.9% from 6.2% in the second quarter.
China’s economy, the world’s second largest, is expected to grow at an average rate of 6.4% between 2017 and 2021, according to the International Monetary Fund, compared to 6.0% the previous year. It also expects debt to tower to almost 400% of GDP by 2022, an increase from 242% in 2016, which could precipitate a drastic drop in growth over the medium term.
The Shanghai Composite Index closed up 0.08% Wednesday, completing a 9.42% rise year to date.
Regarding politics, President Xi Jinping was confirmed last week for his second five-year term as Communist Party leader, ushering in a new group of leaders to serve under him.
“We expect China's political environment will remain stable going forward,” Matthews China said. “In managing the portfolio, we will continue to seek companies that can, in our view, deliver sustainable earnings growth at reasonable valuations.”
For Matthews China, though, valuations and discounts on good companies count for more than the economic weather.
The new buys
Agricultural Bank of China Ltd. (HKSE:01288, Financial)
Matthews China purchased 35,041,000 shares, giving it 2.07% portfolio weight. The stock’s share price averaged $4 Honk Kong dollars.
Agricultural Bank of China Ltd. has a market cap of 1,403.95 billion Hong Kong dollars; its shares were traded around $3.67 with a P/E ratio of 6.56 and P/S ratio of 2.35. The trailing 12-month dividend yield of Agricultural Bank of China Ltd. stocks is 5.31%. The forward dividend yield of Agricultural Bank Of China Ltd. stocks is 5.31%. Agricultural Bank Of China Ltd. had an annual average earnings growth of 6.80% over the past five years.
Matthews China purchased 193,500 shares of 51job Inc., giving it 1.54% portfolio weight. The stock’s share price for the third quarter averaged $54.
51job Inc. has a market cap of $3.76 billion; its shares were traded around $61.26 with a P/E ratio of 45.75 and P/S ratio of 9.80. 51job Inc. had an annual average earnings growth of 22.10% over the past 10 years. GuruFocus rated 51job Inc. the business predictability rank of 4.5-star.
Sino Biopharmaceutical Ltd. (HKSE:01177, Financial)
Matthews China purchased 7.77 million shares, giving it 1.08% portfolio weight. The stock’s price for the third quarter averaged 7 Hong Kong dollars.
Sino Biopharmaceutical Ltd. has a market cap of 67.53 billion Hong Kong dollars; its shares were traded around 9.60 Hong Kong dollars with a P/E ratio of 30.37 and P/S ratio of 3.98. The trailing 12-month dividend yield of Sino Biopharmaceutical Ltd. stocks is 0.71%. The forward dividend yield of Sino Biopharmaceutical Ltd. stocks is 0.88%. Sino Biopharmaceutical Ltd. had an annual average earnings growth of 32.70% over the past 10 years. GuruFocus rated Sino Biopharmaceutical Ltd. the business predictability rank of 4.5-star.
Naspers Ltd. (NPSNY, Financial)
Matthews China purchased 165,700 shares, giving it 0.96% portfolio weight. The stock’s price averaged $45 per share for the third quarter.
Naspers Ltd. has a market cap of $107.59 billion; its shares were traded around $49.80 with a P/E ratio of 39.55 and P/S ratio of 19.07. The trailing 12-month dividend yield of Naspers Ltd. stocks is 0.18%. The forward dividend yield of Naspers Ltd. stocks is 0.18%. Naspers Ltd. had an annual average earnings growth of 18.20% over the past 10 years. GuruFocus rated Naspers Ltd. the business predictability rank of 3-star.
See Matthews China Fund (Trades, Portfolio)’s portfolio here.
