Market Insights from Portfolio Manager Winnie Chwang

Market Insights from Portfolio Manager Winnie Chwang

This Fund has a focus on China’s small companies—could you explain the investment idea behind this? Why China? Why small cap?

Small-cap companies in China are at the forefront of the country’s economic shift away from fixed asset investments toward innovation, consumption and services and actively participate in the growth of China’s new economy sectors. Smaller companies in China may lack access to capital, meaning they must be more competitive, innovative and capital-efficient than their larger peers both to survive and thrive. This capital efficiency has the potential to drive a strong return on invested capital.

We believe China’s small-cap companies have the entrepreneurial spirit and flexibility to recognize and respond to changing local market trends, including changing patterns of consumption. In our opinion, small companies provide opportunities for higher growth at lower valuation because they are less well-known. This allows active managers to uncover opportunities among high-quality companies with good corporate governance at lower valuations.

The Fund performed very strongly last year—what were the drivers?

Our focus on finding innovative and capital-efficient small companies that are relatively insulated from macroeconomic uncertainties served us well during the year for the Matthews China Small Companies Fund. One reason that China’s small companies stood out in the year was their focus on domestic demand and opportunities.