Data as of 3/31/18
Manager's Commentary
Market Review
Greater China equities fell in March 2018. Shares were undermined by escalating fears of a global trade war following the Trump administration's decision to impose tariffs on the imports of a range of goods, prompting China to announce plans of retaliatory tariffs. Under such negative sentiment, almost all sectors saw negative returns with the exception of health care and utilities - which add up to less than 5% of the MSCI Golden Dragon Index (the "benchmark"). In terms of country performance, Taiwan equities outperformed, mainly driven by the strong performance of semiconductor supply chain companies.
Fund Review
In March 2018, the China Fund, Inc. (the "Fund") underperformed the benchmark. If we take a further look into the attribution, sector allocation effects more than explain the underperformance. Meanwhile, stock selection was positive, especially within the information technology and consumer discretionary sectors. The top contributors were concentrated in semiconductor companies in Taiwan. These include Win Semiconductors Corp., a compound semiconductor wafer producer, benefiting from the rising popularity of 3D sensing technology. Another contributor was Nanya Technology Corp., a memory chip producer, which captures the trend of rising computational power of smart devices. We continue to be positive on the semiconductor cycle given the consolidation of suppliers as well as the rising and more diversified sources of end demand. These include the greater use of semiconductors in consumer devices, communications, industrial automation and electric vehicles, among others. Stock selection will be increasingly important and we are focusing on those companies with a technological edge and the right market positioning to benefit from the next wave of demand upgrades.
On the other hand, performance detraction came from companies which are potentially vulnerable to a US-China trade conflict. For example, one of the top detractors was WH Group Ltd. ("WH Group"), a leading meat product provider in China, that also owns the US-based brand Smithfield. Investors were concerned that higher tariffs on pork products sold from the United States into China could lead to a significant drop in demand. In our view, WH Group and Smithfield have become a much more robust and vertically integrated business in recent years, and they are better positioned to mitigate the impact of weakness in this part of their operations. Their latest results announcement also confirmed our investment thesis that this company deserves a rerating as the previous volatility of returns, driven by pork commodity prices, should be replaced by a more steady future earnings growth profile.
Outlook
Concerns over the US-China trade conflict have been under the spotlight over the past month. At this stage, we believe it is hard to assess the impact of a trade war. So far the response from China seems indicates a reluctance to escalate the situation. A trade war is a "lose-lose" situation for all countries and as such our biggest concern is the global economy. Although China is now better positioned to weather a trade shock - exports currently account for around 19% of Gross Domestic Product, having fallen from 35% in 2007, with domestic consumption having become a larger part of the economy - any global slowdown is bound to have an adverse impact.
Over the long term however, this event could be a good trigger for China to push through reforms for a stronger market environment that would include better protection of intellectual property and further improvement on market rules and regulations. Such measures would, over time, help to foster more sustainable growth in China. In the near term, the Fund and the market have suffered in absolute terms. Our strategy is to focus on domestic sectors including structural growth areas like the environmental sectors, which are less affected by the macro economy and trade conflicts. We can also utilize any excessive share price movements in this volatile environment to add to positions in stocks that have been overly punished by fear of a trade war.
| In Brief | |
| Fund Data | |
| Description | Seeks to achieve long-term capital appreciation through investments in China companies. |
| Listing Date (NYSE) | July 10, 1992 |
| Total Fund Assets (millions) | $380.4 |
| Median Market Cap (in billions) | $15.6 |
| Distribution Frequency | Annual |
| Management Firm | Allianz Global Investors U.S. LLC |
| Portfolio Management | Christina Chung, CFA, CMA Lead Portfolio Manager |
|
Performance (US$Returns) (as of 3/31/18) |
||
| Fund | Benchmark¹ | |
| One Month | -2.50% | -2.15% |
| Three Month | 3.24% | 2.05% |
| One Year | 29.59% | 30.52% |
| Three Year | 8.33% | 10.73% |
| Net Asset Value / Market Price | |
| Net Asset Value (NAV) / Market Price at Inception | $13.15 / $14.26 |
| NAV / Market Price (as of 3/31/18) | $24.19 / $22.14 |
| High / Low Ranges (52-Week) | |
| High / Low NAV | $26.38 / $18.94 |
| High / Low Market Price | $24.70 / $16.62 |
| Premium/Discount to NAV (as of 3/31/18) | -8.47% |
| Fund Data (Common Shares) | |
| Shares Outstanding | 15,722,674 |
| Average Daily Volume | 25,118 |
| Expense Ratio | 1.49% |
Fund Manager
Christina Chung, CFA, CMA
Lead Portfolio Manager
1. MSCI Golden Dragon Index.
The China Fund, Inc.
Investment Objective
The investment objective of The China Fund, Inc. (the "Fund") is to achieve long-term capital appreciation. The Fund seeks to achieve its objective through investment in the equity securities of companies and other entities with significant assets, investments, production activities, trading or other business interests in China or which derive a significant part of their revenue from China.
The Fund has an operating policy that the Fund will invest at least 80% of its assets in China companies. For this purpose, 'China companies' are (i) companies for which the principal securities trading market is in China; (ii) companies for which the principal securities trading market is outside of China or in companies organized outside of China, that in both cases derive at least 50% of their revenues from goods or services sold or produced, or have at least 50% of their assets in China; or (iii) companies organized in China. Under the policy, China means the People's Republic of China, including Hong Kong, and Taiwan. The Fund will provide its stockholders with at least 60 days' prior notice of any change to this policy.
Returns For Periods Ended March 31, 2018*
| 1 Month | 3 Month | YTD | 1 Year | 3 Year | 5 Year | 10 Year | Inception | |
| NAV | -2.50% | 3.24% | 3.24% | 29.59% | 8.33% | 10.87% | 7.16% | 10.80% |
| Market Price | -1.20% | 2.26% | 2.26% | 36.52% | 9.79% | 11.18% | 8.20% | 10.07% |
| MSCI Golden Dragon Index | -2.15% | 2.05% | 2.05% | 30.52% | 10.73% | 11.19% | 6.52% | — |
Calendar Year Returns
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
| NAV | 27.26% | -24.37% | 12.12% | 18.31% | 7.82% | -5.51% | 0.60% | 37.92% |
| Market Price | 23.60% | -27.51% | 20.52% | 12.70% | 5.29% | -6.38% | -0.47% | 47.41% |
| MSCI Golden Dragon Index | 13.60% | -18.35% | 22.65% | 7.25% | 8.06% | -7.12% | 5.75% | 44.19% |
Past performance is not a guide to future returns.
| * | Annualized for periods greater than one year. |
Source: State Street Bank and Trust Company. Source for index data: MSCI as at March 31, 2018. Investment returns are historical and do not guarantee future results. Investment returns reflect changes in net asset value and market price per share during each period and assumes that dividends and capital gains distributions, if any, were reinvested. The net asset value (NAV) percentages are not an indication of the performance of a shareholder's investment in the Fund, which is based on market price. NAV performance includes the deduction of management fees and other expenses. Market price performance does not include the deduction of brokerage commissions and other expenses of trading shares and would be lower had such commissions and expenses been deducted. It is not possible to invest directly in an index.
Premium/Discount |
| Sector Allocation | ||
| Fund | Benchmark¹ | |
| Information Technology | 39.04% | 38.35% |
| Financials | 22.26% | 23.52% |
| Consumer Discretionary | 11.34% | 8.47% |
| Industrials | 6.68% | 5.08% |
| Real Estate | 5.93% | 7.91% |
| Consumer Staples | 5.21% | 2.26% |
| Telecom Services | 3.18% | 3.70% |
| Energy | 2.34% | 2.98% |
| Health Care | 1.54% | 1.63% |
| Utilities | 0.85% | 3.24% |
| Materials | 0.82% | 2.88% |
| Other assets & liabilities | 0.81% | 0.00% |
Source: IDS GmbH - Analysis and Reporting Services, a subsidiary of Allianz SE.
| Country Allocation | ||
| Fund | Benchmark¹ | |
| China | 87.24% | 77.06% |
| Hong Kong Red Chips | 21.75% | 7.70% |
| Hong Kong 'H' shares | 19.61% | 18.84% |
| Equity linked securities ('A' shares) | 0.00% | 0.00% |
| China 'A' & 'B' shares | 3.90% | 0.05% |
| Other Hong Kong securities | 41.16% | 34.36% |
| Others | 0.00% | 16.12% |
| Taiwan | 12.76% | 22.94% |
| Other assets & liabilities | 0.82% | 0.00% |
| Top 10 Holdings | |
| TENCENT HOLDINGS LTD (China) | 9.86% |
| TAIWAN SEMIC CO LTD (Taiwan) | 7.32% |
| ALIBABA GROUP HOLDING LTD (China) | 6.53% |
| CHINA CONSTRUCTION BANK CORP (China) | 6.45% |
| SUN HUNG KAI PROPERTIES LTD (H.K.) | 3.97% |
| PING AN INSURANCE (China) | 3.90% |
| CHINA MERCHANTS BANK CO LTD (China) | 3.61% |
| GLOBALWAFERS CO LTD (Taiwan) | 2.76% |
| CHINA MENGNIU DAIRY CO LTD (China) | 2.69% |
| HK EXCHANGES & CLEARING LTD (H.K.) | 2.51% |
| Portfolio Characteristics | ||
| Fund | Benchmark¹ | |
| P/E Ratio | 13.84 | 13.80 |
| P/B Ratio | 2.04 | 1.85 |
| Issues in Portfolio | 53 | 291 |
| Foreign Holdings (%) | 99.19 | 100.00 |
| Other assets & liabilities (%) | 0.81 | 0.00 |
| Yield (%) | 2.29 | 3.35 |
Source: IDS GmbH - Analysis and Reporting Services, a subsidiary of Allianz SE.
1. MSCI Golden Dragon Index.
The China Fund, Inc.
Distribution History (10 Year)
| Declaration Date | Ex-dividend Date | Record Date | Payable Date | Distribution/ Share |
Income | Long-term
Capital Gain |
Short-term
Capital Gain |
| 12/8/08 | 12/22/08 | 12/24/08 | 1/23/09 | $5.81740 | $0.48130 | $5.33610 | — |
| 12/9/09 | 12/22/09 | 12/24/09 | 12/29/09 | $0.25570 | $0.25570 | — | — |
| 12/8/10 | 12/21/10 | 12/24/10 | 12/29/10 | $2.27420 | $0.37460 | $1.89960 | — |
| 12/8/11 | 12/21/11 | 12/23/11 | 12/29/11 | $2.99640 | $0.17420 | $2.82220 | — |
| 12/10/12 | 12/20/12 | 12/24/12 | 12/28/12 | $3.25170 | $0.34730 | $2.90440 | — |
| 12/13/13 | 12/19/13 | 12/23/13 | 12/27/13 | $3.31400 | $0.43870 | $2.87530 | — |
| 12/8/14 | 12/18/14 | 12/22/14 | 1/5/15 | $3.76510 | $0.29820 | $3.46690 | — |
| 12/16/15 | 12/23/15 | 12/28/15 | 1/6/16 | $1.49580 | $0.21330 | $0.84620 | $0.43630 |
| 12/9/16 | 12/19/16 | 12/21/16 | 1/5/17 | $0.46780 | $0.46780 | — | — |
| 12/8/17 | 12/18/17 | 12/19/17 | 1/4/18 | $0.54930 | $0.54930 | — | — |
Distribution/Share includes Income, Long-term Capital gains and Short-term Capital gains.
The China Fund NAV Performance of $10,000 since inception
Past performance is not a guide to future returns.
Index Description
MSCI Golden Dragon Index
The MSCI Golden Dragon Index captures the equity market performance of large and mid cap China securities (H shares, B shares, Red-Chips and P-Chips) and non-domestic China securities listed in Hong Kong and Taiwan.
It is not possible to invest directly in an index.
The China Fund, Inc.
Portfolio in Full
Sector |
Company (exchange ticker) |
Market Price |
Holding | Value US$ |
% of net assets |
| Information Technology | 38.94 | ||||
| TENCENT HOLDINGS LTD | 700 | 409.60 | 719,000 | 37,522,921 | 9.86 |
| TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD | 2330 | 244.00 | 3,332,000 | 27,883,801 | 7.32 |
| ALIBABA GROUP HOLDING LTD ADR | BABA | 183.54 | 135,464 | 24,863,063 | 6.53 |
| GLOBALWAFERS CO LTD | 6488 | 463.50 | 660,000 | 10,491,820 | 2.76 |
| NANYA TECHNOLOGY CORP | 2408 | 92.30 | 2,724,000 | 8,623,151 | 2.26 |
| ASM PACIFIC TECHNOLOGY LTD | 522 | 109.60 | 433,500 | 6,053,513 | 1.59 |
| WIN SEMICONDUCTORS CORP | 3105 | 313.00 | 501,000 | 5,378,228 | 1.41 |
| BAIDU INC ADR | BIDU | 223.19 | 24,101 | 5,379,102 | 1.41 |
| DIGITAL CHINA HOLDINGS LTD | 861 | 4.31 | 9,305,000 | 5,109,771 | 1.34 |
| FOCUS MEDIA INFORMATION TE A | 002027 | 13.18 | 1,965,422 | 4,117,212 | 1.08 |
| CHUNGHWA PRECISION TEST TECH CO LTD | 6510 | 791.00 | 138,000 | 3,743,801 | 0.98 |
| LARGAN PRECISION CO LTD | 3008 | 3,315.00 | 32,000 | 3,638,234 | 0.96 |
| MEDIATEK INC | 2454 | 331.00 | 188,000 | 2,134,239 | 0.56 |
| AAC TECHNOLOGIES HOLDINGS INC | 2018 | 141.60 | 102,500 | 1,849,247 | 0.49 |
| GOLDPAC GROUP LTD | 3315 | 2.37 | 4,970,000 | 1,500,764 | 0.39 |
| Financials | 22.26 | ||||
| CHINA CONSTRUCTION BANK CORP | 939 | 8.06 | 23,898,000 | 24,541,686 | 6.45 |
| PING AN INSURANCE GROUP CO OF CHINA LTD | 2318 | 79.80 | 1,461,000 | 14,854,598 | 3.90 |
| CHINA MERCHANTS BANK CO LTD | 3968 | 32.15 | 3,356,500 | 13,749,137 | 3.61 |
| HONG KONG EXCHANGES & CLEARING LTD | 388 | 255.20 | 293,800 | 9,553,011 | 2.51 |
| BANK OF CHINA LTD | 3988 | 4.22 | 15,500,000 | 8,333,970 | 2.19 |
| CATHAY FINANCIAL HOLDING CO LTD | 2882 | 51.80 | 2,880,000 | 5,116,576 | 1.34 |
| FUBON FINANCIAL HOLDING CO LTD | 2881 | 50.10 | 2,805,000 | 4,819,786 | 1.27 |
| CITIC SECURITIES CO LTD | 6030 | 17.96 | 1,640,000 | 3,752,822 | 0.99 |
| Consumer Discretionary | 11.30 | ||||
| GALAXY ENTERTAINMENT GROUP LTD | 27 | 71.25 | 747,000 | 6,781,305 | 1.78 |
| NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP ADR | EDU | 87.65 | 67,468 | 5,913,570 | 1.55 |
| CHINA INTERNATIONAL TRAVEL A | 601888 | 53.68 | 640,632 | 5,465,792 | 1.44 |
| SAIC MOTOR CORP LTD A | 600104 | 32.95 | 999,407 | 5,233,953 | 1.37 |
| QINGLING MOTORS CO LTD | 1122 | 2.57 | 14,816,000 | 4,851,454 | 1.27 |
| LI & FUNG LTD | 494 | 3.84 | 8,120,000 | 3,972,785 | 1.04 |
| JD.COM INC ADR | JD | 40.49 | 80,393 | 3,255,113 | 0.85 |
| SANDS CHINA LTD | 1928 | 42.20 | 532,400 | 2,862,584 | 0.75 |
| MGM CHINA HOLDINGS LTD | 2282 | 20.25 | 1,099,200 | 2,836,022 | 0.74 |
| BRILLIANCE CHINA AUTOMOTIVE | 1114 | 16.38 | 924,000 | 1,928,385 | 0.51 |
| Industrials | 6.70 | ||||
| CHINA EVERBRIGHT INTERNATIONAL LTD | 257 | 11.00 | 6,146,000 | 8,613,766 | 2.26 |
| QINGDAO PORT INTERNATIONAL CO LTD | 6198 | 5.81 | 6,077,000 | 4,498,556 | 1.18 |
| CN STATE CONSTRUCTION INTERNATIONAL HOLDINGS LTD | 3311 | 9.58 | 3,602,000 | 4,396,601 | 1.15 |
| BEIJING ENTERPRISES HOLDINGS LTD | 392 | 41.00 | 591,000 | 3,087,302 | 0.81 |
| KING SLIDE WORKS CO LTD | 2059 | 409.00 | 185,000 | 2,595,089 | 0.68 |
| AIRTAC INTERNATIONAL GROUP | 1590 | 519.00 | 133,000 | 2,367,425 | 0.62 |
| Real Estate | 5.92 | ||||
| SUN HUNG KAI PROPERTIES LTD | 16 | 124.00 | 957,000 | 15,119,639 | 3.97 |
| CHINA OVERSEAS LAND & INVESTMENT LTD | 688 | 27.25 | 1,516,000 | 5,263,486 | 1.38 |
| COUNTRY GARDEN HOLDINGS CO LTD | 2007 | 16.16 | 1,062,000 | 2,186,622 | 0.57 |
| Consumer Staples | 5.21 | ||||
| CHINA MENGNIU DAIRY CO LTD | 2319 | 26.90 | 2,989,000 | 10,244,388 | 2.69 |
| WH GROUP LTD | 288 | 8.36 | 5,726,000 | 6,099,095 | 1.60 |
| VINDA INTERNATIONAL HOLDINGS LTD | 3331 | 13.80 | 1,984,000 | 3,488,418 | 0.92 |
| Telecom Services | 3.18 | ||||
| CHINA UNICOM HONG KONG LTD | 762 | 9.90 | 3,660,000 | 4,616,620 | 1.21 |
The China Fund, Inc.
Portfolio in Full
| Sector |
Company |
Market Price |
Holding |
Value US$ |
% of net assets |
| PCCW LTD | 8 | 4.54 | 7,286,000 | 4,214,566 | 1.11 |
| CHINA MOBILE LTD | 941 | 71.95 | 356,500 | 3,268,121 | 0.86 |
| Energy | 2.34 | ||||
| CHINA OILFIELD SERVICES LTD | 2883 | 8.09 | 4,768,000 | 4,914,650 | 1.29 |
| CHINA PETROLEUM & CHEMICAL CORP | 386 | 6.89 | 4,552,000 | 3,996,035 | 1.05 |
| Health Care | 1.54 | ||||
| CSPC PHARMACEUTICAL GROUP LTD | 1093 | 20.85 | 2,208,000 | 5,865,607 | 1.54 |
| Utilities | 0.85 | ||||
| CHINA RESOURCES POWER HOLDINGS CO LTD | 836 | 14.32 | 1,778,000 | 3,244,013 | 0.85 |
| Materials | 0.81 | ||||
| TIANGONG INTERNATIONAL CO LTD | 826 | 1.35 | 17,970,000 | 3,090,933 | 0.81 |
Source: State Street Bank and Trust Company, IDS GmbH - Analysis and Reporting Services, a subsidiary of Allianz SE.
Important Information:
Holdings are subject to change daily. The Fund seeks to achieve its objective through investment in the equity securities of companies and other entities with significant assets, investments, production activities, trading or other business interests in China or which derive a significant part of their revenue from China. Investing in non-U.S. securities entails additional risks, including political and economic risk and the risk of currency fluctuations, as well as lower liquidity. These risks, which can result in greater price volatility, will generally be enhanced in less diversified funds that concentrate investments in a particular geographic region.
The information contained herein has been obtained from sources believed to be reliable but Allianz Global Investors U.S. LLC and its affiliates do not warrant the information to be accurate, complete or reliable. The opinions expressed herein are subject to change at any time and without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Investors should consider the investment objectives, risks, charges and expenses of any mutual fund carefully before investing. This and other information is contained in the Fund's annual and semiannual reports, proxy statement and other Fund information, which may be obtained by contacting your financial advisor or visiting the Fund's website at www.chinafundinc.com. This information is unaudited and is intended for informational purposes only. It is presented only to provide information on the Fund's holdings, performance and strategies. The Fund is a closed-end exchange traded management investment company. This material is presented only to provide information and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering by a closed-end fund, its shares can be purchased and sold on the open market through a stock exchange, where shares may trade at a premium or a discount. The market price of holdings is subject to change daily.
P/E is a ratio of security price to earnings per share. Typically, an undervalued security is characterized by a low P/E ratio, while an overvalued security is characterized by a high P/E ratio. P/B is a ratio of the current stock price to the book value. This is used to identify undervalued stocks. Dividend yield is the annual percentage of return earned by an investor on a common or preferred stock. The average dividend yield is the dividend rate divided by current share price.
©2018 Allianz Global Investors Distributors LLC.
| Investment Products: Not FDIC Insured | May Lose Value | Not Bank Guaranteed | FS-CHN-0318 |