Shares of the Matthews China Active ETF (MCH) have increased nearly 20% in the past month, further propelled on Monday as U.S. investors bet that zero-COVID protests in China will speed up the government’s plan to shift away from its current policy.
Chinese equities rebounded on Monday after declining overnight Sunday due to widespread demonstrations in China against the country’s zero-tolerance approach to COVID-19. In Monday morning trading, MCH advanced 1.3%. Shares of MCH are up 19.4% over a one-month period as of November 28.
Several large cities in China, including Beijing, Shanghai, and Wuhan, saw widespread demonstrations during the weekend. The protests followed a deadly fire in Urumqi, capital of the remote region of Xinjiang, on Friday that officials said killed 10 people, as some residents suggested that pandemic restrictions contributed to a delay in putting out the fire, the Wall Street Journal reported on Monday.
China saw nearly 40,000 new locally transmitted cases of COVID-19 on Sunday, according to the National Health Commission. This surge in cases came just weeks after China’s government published a list of 20 measures designed to “optimize” mitigation of COVID, marking a significant change in direction of policy towards living with the virus and away from zero tolerance for cases, Matthews Asia investment strategist Andy Rothman wrote in a recent insight.
Much of this volatility was to be expected, however. Rothman said on November 14 investors should understand that the path to the end of lockdowns — critical for a full economic recovery — will be bumpy, especially as COVID cases are on the rise in China.
“There will be more lockdowns in the coming months as well as reports of local officials failing to follow the new policy guidance,” Rothman wrote.
Economic data is likely to remain weak through the winter as a result, Rothman said. “The end of lockdowns is not likely until the spring, which should be followed by a gradual economic recovery in the second half of the year,” Rothman wrote.
MCH is a high-conviction equity portfolio that seeks companies benefiting from China’s domestic consumption. MCH uses an all-cap fundamental GARP approach driven by proprietary research and combines long-term core holdings with more opportunistic ideas to provide consistency through cycles. MCH offers concentrated exposure to China but is more forward-thinking than indexes in terms of how it looks at very complex and large geography.
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