The Matthews China Fund (Trades, Portfolio) released its fourth-quarter 2020 portfolio this week, disclosing that its top four new buys were Kingsoft Corp. Ltd. (HKSE:03888, Financial), China Merchants Securities Co. Ltd. (HKSE:06099, Financial), Zhejiang Juhua Co. Ltd. (SHSE:600160, Financial) and Wuxi Lead Intelligent Equipment Co. Ltd. (SZSE:300450, Financial).
Overseen by Andrew Mattock and Winnie Chwang, the fund returned 43.05% for the year, compared to the MSCI China Index return of 29.67%. During the fourth quarter, the fund returned 12.69%, outperforming the benchmark return of 11.21%.
As of December 2020, the fund's $1.5 billion equity portfolio contains 54 stocks, with 10 new holdings and a turnover ratio of 17%. The top three sectors in terms of weight are consumer cyclical, financial services and communication services, representing 20.84%, 19.18% and 15.28% of the equity portfolio.
Kingsoft
The fund purchased 3.22 million shares of Kingsoft (HKSE:03888, Financial), giving the position 1.39% weight in the equity portfolio. Shares averaged 41.34 Hong Kong dollars ($5.33) during the fourth quarter; the stock is significantly overvalued based on Wednesday's price-to-GF Value ratio of 4.19.
GuruFocus ranks the Beijing-based entertainment software company's profitability 8 out of 10 on the back of net profit margins and returns outperforming over 93% of global competitors.
The fund said in its letter that Kingsoft may be trading below its sum-of-the-parts valuation.
China Merchants Securities
The fund purchased 13,888,800 shares of China Merchants Securities, giving the stake 1.39% weight in the equity portfolio. Shares averaged HK$10.45 during the fourth quarter; the stock is fairly valued based on Wednesday's price-to-GF Value ratio of 0.96.
The Shenzhen, Guangdong-based company offers a wide range of financial services, including wealth management, investment banking and investment management. According to GuruFocus, the company's debt ratios underperform over 70% of global competitors, suggesting high use of financial leverage.
Zhejiang Juhua
The fund purchased 14,085,700 shares of Zhejiang Juhua (SHSE:600160, Financial), giving the position 1.17% weight in the equity portfolio. Shares averaged 7.4 yuan ($1.15) during the fourth quarter; the stock is modestly overvalued based on Wednesday's price-to-GF Value ratio of 1.17.
Zhejiang Juhua produces fluorochemical materials and other related products. GuruFocus ranks the company's financial strength 8 out of 10 on the back of a strong Altman Z-score of 6.05 and a debt-to-equity ratio that outperforms 85.93% of global competitors.
Wuxi Lead Intelligent Equipment
The fund purchased 1,277,955 shares of Wuxi Lead Intelligent Equipment (SZSE:300450, Financial), giving the position 1.10% weight in the equity portfolio. Shares averaged 65.22 yuan during the fourth quarter; the stock is significantly overvalued based on Wednesday's price-to-GF Value ratio of 2.09.
GuruFocus ranks the company's profitability 8 out of 10 on the back of profit margins and returns outperforming over 85% of global industrial product competitors.
See also
According to GuruFocus' Global Market Valuation pages, the China stock market is expected to return an average of 5% per year based on Berkshire Hathaway Inc. (BRK.A)(BRK.B) CEO Warren Buffett (Trades, Portfolio)'s favorite market indicator. Ahead of Chinese New Year, the ratio of total market cap to gross domestic product for the China stock market is approximately 68%.
Disclosure: No positions.
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