China's Current Troubles Not Long-Term Worry: Matthews Asia

Long-term investors in China should look beyond the country’s rising tensions with the U.S., the drag COVID-19 lockdowns are placing on the economy and reduced growth forecasts, a group of China-focused fund managers said in New York this week. 

While the immediate forecast looks bumpy, with President Xi Jinping renewing his commitment to the Communist Party, China’s long-term growth prospects are strong, managers and strategists with San Francisco-based Matthews International Capital Management said in a media roundtable held to discuss the launch this summer of a trio of Asia-focused exchange-traded funds.  

The funds were the first issued by Matthews Asia, a unit of Matthews International, which manages $14.4 billion. They include the Matthews Emerging Markets Equity Active ETF (MEM), the Matthews Asia Innovators Active ETF (MINV) and the Matthews China Active ETF (MCH). All three have an expense ratio of 0.79% and net assets of $11.09 million collectively. 

Investors have been rattled by a flurry of negative China news. The U.S. is vowing to crack down on semiconductor imports over security concerns; the International Monetary Fund cut its growth forecast for the country due to lockdowns; and fears of war over Taiwan have arisen. Matthews’ strategists said the concerns were overwrought. 

“I am not worried about Taiwan,” said Andy Rothman, Matthews Asia’s lead investment strategist and China expert, alluding to apprehensions raised about China possibly taking military action against the self-governed island. “What I am worried about is COVID policy in China and China policy in Washington.”  

China’s economy is being battered by President Xi’s zero-COVID-19 policy. Youth unemployment has jumped and businesses have shuttered in the policy’s wake. The IMF last month cut its outlook for China economic growth to 3.3% this year, after forecasting 5% growth in April for 2022. 

Rothman called the Biden administration's policy on China a “looming disaster,” saying it was driven by “miscommunication and fear.” 

He said despite the president’s recent claims of providing military support to Taiwan in the case of an aggressive takeover from China, the U.S.’ official national security stance toward Taiwan has not changed; hence, investors should not be dissuaded from exploring the Asia-Pacific region for more profitable opportunities.  

Matthews’ fund managers Michael Oh and Andrew Mattock cited longer-term positive factors for China. Mattock said China’s stock market has a variety of good investments, and Oh noted the country’s skilled labor force will undergird the economy’s growth. 

Contact Zoya Mirza at [email protected]