Saying China’s stock market decline was “an opportune time” to “pick up quality companies at good prices” in the third quarter, Matthews China Fund (Trades, Portfolio) started six positions.
The trade war between China and the U.S. sent the Matthews China Fund (Trades, Portfolio) down 10.06% during the third quarter, worse than the 7.42% slide in the MSCI China Index. But fund managers believe the market priced in the worst-case scenario, and they remained “optimistic” about long-term growth prospects, highlighting solid earnings growth expectations and high single-digit price-earnings multiples in a third-quarter letter.
“Looking ahead, we believe that besides dealing with the trade conflicts, China will also continue to further deleverage its economy,” the letter said. “We see the fact that China is able to manage both of these challenges without further plans for major stimulus as an indicator that its underlying economy is still on solid footing.”
The $818.09 million Matthews China Fund (Trades, Portfolio) is overseen by lead manager Andrew Mattock, with co-managers Winnie Chwang and Henry Zhang. Founded in 1998, it has returned 9.69% annualized since inception versus a 4.59% annualized gain in the MSCI China Index.
Fund managers select stocks that have potential for sustainable growth based on business fundamentals. At the end of the third quarter, it had 48 stocks, with 32.63% invested in financial services and 22.26% in technology, its two largest represented sectors.
The fund’s new buys of the third quarter were: New China Life Insurance Co. Ltd. (HKSE:01336, Financial), Beijing Originwater Technology Co. Ltd. (SZSE:300070, Financial), Galaxy Entertainment Group Ltd. (HKSE:00027, Financial), Kingboard Holdings Ltd. (HKSE:00148, Financial), Momo Inc. (MOMO, Financial), Kingdee International Software Group Co. Ltd. (HKSE:00268).
New China Life Insurance Co. Ltd. (HKSE:01336, Financial)
The fund purchased 5,131,800 shares of the company, giving it 3.01% portfolio weight. The stock’s third-quarter share price averaged around 34 Hong Kong dollars.
New China Life Insurance Co. Ltd. has a market cap of 148.25 billion Hong Kong dollars; its shares were traded around 39.50 Hong Kong dollars with a price-earnings ratio of 18.31 and price-sales ratio of 0.97. The trailing 12-month dividend yield of New China Life Insurance Co. Ltd. stocks is 1.69%.
Beijing Originwater Technology Co. Ltd. (SZSE:300070, Financial)
The fund purchased 6,574,350 shares of the company, giving it 1.17% portfolio weight. The stock’s third-quarter share price averaged around 12 yuan.
Beijing Originwater Technology Co. Ltd. has a market cap of 26.72 billion yen; its shares were traded around 9.29 yen Friday with a price-earnings ratio of 11.30 and price-sales ratio of 1.86. The trailing 12-month dividend yield of Beijing Originwater Technology Co. Ltd. is 1.06%. The forward dividend yield of Beijing Originwater Technology Co. Ltd. is 1.06%. Beijing Originwater Technology Co. Ltd. had an annual average earnings growth of 40.5% over the past 10 years. GuruFocus rated Beijing Originwater Technology Co. Ltd. the business predictability rank of 4.5-star.
Galaxy Entertainment Group Ltd. (HKSE:00027, Financial)
The fund purchased 1.392 million shares of the company, giving it 1.07% portfolio weight. The stock’s third-quarter share price averaged around $57 Hong Kong dollars.
Galaxy Entertainment Group Ltd. has a market cap of 189.03 billion Hong Kong dollars; its shares were traded around 47.90 Hong Kong dollars with a price-earnings ratio of 14.49 and price-sales ratio of 3.02. Galaxy Entertainment Group Ltd. had an annual average earnings growth of 1.50% over the past five years.
Kingboard Holdings Ltd. (HKSE:00148, Financial)
The fund purchased 2.504 million shares of the company, giving it 1% portfolio weight. The stock’s third-quarter share price averaged around 27 Hong Kong dollars.
Kingboard Holdings Ltd. has a market cap of 23.29 billion Hong Kong dollars; its shares were traded around 22.60 Hong Kong dollars Friday with a price-earnings ratio of 4.04 and price-sales ratio of 0.51. The trailing 12-month dividend yield of Kingboard Holdings Ltd.is 7.44%. The forward dividend yield of Kingboard Holdings Ltd. is 5.58%. Kingboard Holdings Ltd. had an annual average earnings growth of 7.40% over the past 10 years. GuruFocus rated Kingboard Holdings Ltd. the business predictability rank of 2-star.
The fund purchased 179,200 shares of the company, giving it 0.96% portfolio weight. The stock’s third-quarter share price averaged around $44.
Momo Inc. has a market cap of $7.12 billion; its shares were traded around $35.41 Friday with a price-earnings ratio of 17.40 and price-sales ratio of 4.46.
Kingdee International Software Group Co. Ltd. (HKSE:00268)
The fund purchased 5.81 million shares of the company, giving it 0.77% portfolio weight. The stock’s third-quarter share price averaged around 9 Hong Kong dollars.
Kingdee International Software Group Co. Ltd. has a market cap of 22.85 billion Hong Kong dollars; its shares were traded around 7.48 Hong Kong dollars Friday with a price-earnings ratio of 46.26 and price-sales ratio of 7.33. The trailing 12-month dividend yield of Kingdee International Software Group Co. Ltd. stocks is 0.23%. The forward dividend yield of Kingdee International Software Group Co. Ltd .stocks is 0.23%. Kingdee International Software Group Co. Ltd. had an annual average earnings growth of 13.80% over the past 10 years.
See the fund’s portfolio here.
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Matthews China Fund Establishes 8 Positions in 2nd Quarter
