Attached files
| file | filename |
|---|---|
| 8-K - CHINA FUND INC | fp0014111_8k.htm |
Manager’s Commentary
Market Review
China’s markets were focused on two main events this month: firstly the deteriorating economy; and secondly the encouraging progress of financial market and fiscal reforms. While macroeconomic data continued to reveal a decelerating economy, strong momentum in Chinese equities continued throughout March as a result of actual and anticipated easing moves. The annual National People’s Congress was held in March where Premier Li communicated the new GDP growth target of ‘around 7%’; the lowest target in 15 years. The slowdown was more or less anticipated and any negative signals were more than offset by the meaningful progress made on various reforms. The government announced the Local Government Financing Vehicle (“LGFV”) replacement program as well as the Deposit Insurance Scheme, both regarded as significant breakthroughs on financial market and fiscal reform. In addition, the China Securities Regulatory Commission released guidance on Chinese onshore mutual fund investments in Hong Kong listed China H-shares via the Shanghai-Hong Kong Stock Connect scheme. This enables mainland institutional investors to purchase H-shares via the scheme. As a result, Hong Kong listed Chinese stocks performed very strongly towards the end of the month.
Taiwan equities traded sideways in the month of March. The market experienced some consolidation towards the end of the month as the TWSE Index reached a five year record high. On the macro front, both export and import growth dove into the negative territory, mainly driven by the Chinese New Year holiday, as well as slowing demand from China and Hong Kong.
Fund Review
The China Fund, Inc. (the “Fund”) outperformed the MSCI Golden Dragon Index (the “benchmark index”) for the month. Stock selection in consumer discretionary and financials were the largest contributors to relative returns, while our overweight to consumer discretionary detracted slightly due to the poor performance of the benchmark stocks.
More specifically, among the top contributors for the month was China CYTS Tour Holdings, a Chinese tour operator. This A-share company benefitted from the rising popularity of domestic tourism in China. Its internet platform provides additional support to its share price, as investors expect the offline to online trend will be a future growth driver. Conversely, Tong Hsing Electronic Industries, a leading manufacturer of mid/high-power LED ceramic substrate, was one of the top detractors for the month. The company’s share price took a hit as investors were concerned about potential capital expenditures which may hurt the company’s earnings in the near term. We expect that the adjustment of the global LED lighting market is coming to an end and we expect the company’s revenue growth to improve sequentially. We will continue to hold this company.
Key Transactions
In February, we exited Hangzhou Hikvision, a surveillance camera maker listed on the Shenzhen Stock Exchange, as the stock has performed very strongly. On the other hand, we added more to ICBC, one of the largest commercial banks in China, as we believe this large bank, with its well-established network and deposit base, will be more immune to interest rate liberalization in China.
Outlook
We expect that China’s economy will stay relatively weak in 2015. Fiscal pressure on local governments, in combination with overcapacity in certain sectors, will lead to a decline in investment spending. Conversely, the central government is expected to dispense further supportive measures in the near future, such as further cuts in interest rates and/or lowering of the reserve requirement ratio. The former will help reduce interest burden for corporations, whereas the latter will boost liquidity. Furthermore, we expect the central government to step up spending in infrastructure, such as railways, environment-related industries and healthcare. Hong Kong’s domestic growth will stay unexciting in the near term, on the backdrop of a stable labor market.
As at the end of March, we believe that H-shares are currently traded at a significant discount relative to A-shares, even after the Shanghai-Hong Kong Stock Connect scheme was launched. We expect with increasing regulatory clarity and more capital account liberalization, cross border capital flows will become increasingly bilateral, thus benefitting H- share from a valuation perspective.
Overall, investors appear to be regaining confidence in emerging markets and, more importantly, the steady growth and reform progress in the Chinese economy will contribute to the flow of global capital to H-shares.
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)
|
$345.2
|
|
Median Market Cap (in billions)
|
$5.9
|
|
Distribution Frequency
|
Annual
|
|
Management Firm
|
Allianz Global Investors U.S. LLC
|
|
Portfolio Management
|
Christina Chung, CFA Lead Portfolio Manager
|
|
Performance (US$ Returns)
(as of 3/31/15)
|
||
|
Fund
|
Benchmark1
|
|
|
One Month
|
3.33%
|
1.18%
|
|
Three Months
|
6.48%
|
6.46%
|
|
One Year
|
17.47%
|
18.96%
|
|
Three Years % pa
|
12.04%
|
10.53%
|
|
Net Asset Value / Market Price
|
|
|
Net Asset Value (NAV) / Market Price at Inception
|
$13.15 / $14.26
|
|
NAV / Market Price (as of 3/31/15)
|
$22.01 / $19.35
|
|
High / Low Ranges (52-Week)
|
|
|
High / Low NAV
|
$25.14 / $19.82
|
|
High / Low Market Price
|
$22.46 / $17.64
|
|
Premium/Discount to NAV (as of 3/31/15)
|
-12.09%
|
|
Fund Data (Common Shares)
|
|
|
Shares Outstanding
|
15,682,028
|
|
Average Daily Volume
|
36,742
|
|
Expense Ratio
|
1.30%
|
Fund Managers
Christina Chung, CFA
Lead Portfolio
Manager
1. MSCI Golden Dragon Index.
The China Fund, Inc.
Investment Objective
The investment objective of 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 a 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.
Average Annual Returns
|
1 Month
|
3 Month
|
YTD
|
1 Year
|
3 Year
|
5 Year
|
10 Year
|
Inception | |
|
NAV
|
3.33%
|
6.48%
|
6.48%
|
17.47%
|
12.04%
|
7.22%
|
14.39%
|
11.13%
|
|
Market Price
|
1.90%
|
6.14%
|
6.14%
|
16.81%
|
10.14%
|
6.58%
|
11.41%
|
10.11%
|
|
MSCI Golden Dragon Index
|
1.18%
|
6.46%
|
6.46%
|
18.96%
|
10.53%
|
7.33%
|
10.02%
|
—
|
Calendar Year Returns
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
|
|
NAV
|
86.20%
|
-46.95%
|
72.83%
|
27.26%
|
-24.37%
|
12.12%
|
18.31%
|
7.82%
|
|
Market Price
|
50.24%
|
-40.65%
|
72.19%
|
23.60%
|
-27.51%
|
20.52%
|
12.70%
|
5.29%
|
|
MSCI Golden Dragon Index
|
37.97%
|
-49.37%
|
67.12%
|
13.60%
|
-18.35%
|
22.65%
|
7.25%
|
8.06%
|
Past performance is not a guide to future returns.
Returns are annualized, except for periods of less than one year.
Source: State Street Bank and Trust Company. Source for index data: MSCI as at March 31, 2015. 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
|
25.81%
|
23.54%
|
|
Financials
|
22.83%
|
39.16%
|
|
Consumer Discretionary
|
16.43%
|
6.00%
|
|
Industrials
|
10.63%
|
6.69%
|
|
Telecom Services
|
4.18%
|
7.04%
|
|
Consumer Staples
|
3.76%
|
2.83%
|
|
Health Care
|
2.16%
|
1.08%
|
|
Materials
|
0.87%
|
3.81%
|
|
Energy
|
0.79%
|
5.06%
|
|
Utilities
|
0.00%
|
4.68%
|
|
Other assets & liabilities
|
12.54%
|
0.00%
|
Source: IDS GmbH - Analysis and Reporting Services, a subsidiary of Allianz SE.
|
Country Allocation
|
Fund
|
Benchmark1
|
|
China
|
66.12%
|
72.37%
|
|
Hong Kong Red Chips
|
10.55%
|
12.60%
|
|
Hong Kong 'H' shares
|
20.63%
|
26.57%
|
|
Equity linked securities ('A' shares)
|
11.02%
|
0.00%
|
|
China 'A' & 'B' shares
|
0.00%
|
0.21%
|
|
Other Hong Kong securities
|
23.92%
|
32.98%
|
|
Taiwan
|
21.50%
|
27.63%
|
|
Other assets & liabilities
|
12.38%
|
0.00%
|
|
Top 10 Holdings
|
|
|
PING AN INSURANCE (China)
|
6.26%
|
|
ICBC LTD (China)
|
6.00%
|
|
HONG KONG EXCHANGES AND CLEARING LTD (H.K.)
|
4.38%
|
| CHINA MOBILE LTD (China) |
4.17%
|
|
TENCENT HOLDINGS LTD (China)
|
3.64%
|
|
TAIWAN SEMIC CO LTD (Taiwan)
|
3.56%
|
|
CSR CORP LTD (China)
|
3.49%
|
|
LI & FUNG LTD (H.K.)
|
3.13%
|
| SUN HUNG KAI PROPERTIES LTD (H.K.) |
3.07%
|
|
QINGLING MOTORS CO LTD (China)
|
3.06%
|
|
Portfolio Characteristics
|
||
|
Fund
|
Benchmark1
|
|
|
P/E Ratio
|
13.63
|
12.29
|
|
P/B Ratio
|
2.26
|
1.47
|
|
Issues in Portfolio
|
36
|
281
|
|
Foreign Holdings (%)
|
87.46
|
100.00
|
|
Cash (%)
|
12.54
|
0.00
|
|
Yield (%)
|
2.56
|
2.89
|
|
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
|
|
12/9/05
|
12/19/05
|
12/21/05
|
12/29/05
|
$2.51190
|
$0.21720
|
$2.29470
|
—
|
|
12/8/06
|
12/19/06
|
12/21/06
|
12/29/06
|
$4.01170
|
$0.29960
|
$2.73090
|
$0.98120
|
|
12/7/07
|
12/19/07
|
12/21/07
|
1/25/08
|
$12.12000
|
$0.28000
|
$9.00000
|
$2.84000
|
|
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
|
—
|
Distribution/Share includes Income, Long-term Capital gains and Short-term Capital gains.
The China Fund NAV Performance of $10,000 since inception (with dividends reinvested at NAV price)
Past performance is not a guide to future returns.
Index Description
MSCI Golden Dragon Index
The MSCI Golden Dragon Index captures the equity market performance of large and mid cap China securities (H shares, B shares, Red-Chips and P-Chips) and non-domestic China securities listed in Hong Kong and Taiwan.
It is not possible to invest directly in an index.
The China Fund, Inc.
Portfolio in Full
|
Company
Sector (exchange ticker)
|
Market Price
|
Holding
|
Value US$
|
% of net assets
|
|
|
Information Technology
|
25.82
|
||||
|
TENCENT HOLDINGS LTD
|
700
|
147.30
|
663,200
|
12,598,657
|
3.64
|
|
TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD
|
2330
|
145.50
|
2,647,000
|
12,308,677
|
3.56
|
|
HERMES MICROVISION INC
|
3658
|
1,805.00
|
182,000
|
10,498,881
|
3.04
|
|
DIGITAL CHINA HOLDINGS LTD
|
861
|
8.47
|
9,391,000
|
10,258,226
|
2.97
|
|
DELTA ELECTRONICS INC
|
2308
|
197.50
|
1,513,000
|
9,549,936
|
2.76
|
|
LARGAN PRECISION CO LTD
|
3008
|
2,695.00
|
96,000
|
8,268,456
|
2.39
|
|
TONG HSING ELECTRONIC INDUSTRIES LTD
|
6271
|
108.00
|
2,067,000
|
7,134,420
|
2.06
|
|
ADVANTECH CO LTD
|
2395
|
238.50
|
694,841
|
5,296,247
|
1.53
|
|
SEMICONDUCTOR MANUFACTURING INTERNATIONAL CORP
|
981
|
0.75
|
37,480,000
|
3,625,249
|
1.05
|
|
ASM PACIFIC TECHNOLOGY LTD
|
522
|
80.90
|
332,200
|
3,465,973
|
1.00
|
|
BAIDU INC
|
BIDU
|
208.40
|
15,821
|
3,297,096
|
0.95
|
|
GOLDPAC GROUP LTD
|
3315
|
4.56
|
5,052,000
|
2,971,017
|
0.86
|
|
Financials
|
22.83
|
||||
|
PING AN INSURANCE GROUP CO OF CHINA LTD
|
2318
|
93.45
|
1,797,000
|
21,657,304
|
6.26
|
|
INDUSTRIAL & COMMERCIAL BANK OF CHINA LTD
|
1398
|
5.71
|
28,169,000
|
20,743,620
|
6.00
|
|
HONG KONG EXCHANGES AND CLEARING LTD
|
388
|
189.90
|
619,000
|
15,159,770
|
4.38
|
|
SUN HUNG KAI PROPERTIES LTD
|
16
|
119.70
|
688,000
|
10,620,858
|
3.07
|
|
CHAILEASE HOLDING CO LTD
|
5871
|
78.00
|
2,328,200
|
5,803,758
|
1.68
|
|
CATHAY FINANCIAL HOLDING CO LTD
|
2882
|
50.00
|
3,105,000
|
4,961,649
|
1.43
|
|
Consumer Discretionary
|
16.44
|
||||
|
LI & FUNG LTD
|
494
|
7.57
|
11,080,000
|
10,817,145
|
3.13
|
|
QINGLING MOTORS CO LTD
|
1122
|
2.83
|
28,960,000
|
10,569,684
|
3.06
|
|
MERIDA INDUSTRY CO LTD
|
9914
|
246.00
|
1,323,000
|
10,401,342
|
3.01
|
|
CITIGROUP GLOBAL MARKETS HOLD (exch. for CHINA CYTS TOURS HOLDIN)
|
N/A
|
3.92
|
1,769,112
|
6,934,919
|
2.01
|
|
CLSA FINANCIAL WTS (exch. for GREE ELECTRICAL APP INC)
|
N/A
|
7.13
|
897,891
|
6,400,167
|
1.85
|
|
CITIGROUP GLOBAL MARKETS WTS (exch. for GREE ELECTRICAL APP INC)
|
N/A
|
7.06
|
676,267
|
4,774,445
|
1.38
|
|
DONGFENG MOTOR GROUP CO LTD
|
489
|
12.42
|
2,148,000
|
3,440,590
|
0.99
|
|
ZHONGSHENG GROUP HOLDINGS LTD
|
881
|
5.13
|
3,163,500
|
2,092,966
|
0.61
|
|
CLSA GLOBAL MARKETS PTE (exch. for CHINA CYTS TOURS HOLDIN)
|
N/A
|
3.96
|
360,169
|
1,427,350
|
0.41
|
|
Industrials
|
10.61
|
||||
|
CSR CORP LTD
|
1766
|
10.24
|
9,146,000
|
12,078,365
|
3.49
|
|
CHINA EVERBRIGHT INTERNATIONAL LTD
|
257
|
12.80
|
5,969,000
|
9,853,455
|
2.85
|
|
BEIJING ENTERPRISES HOLDINGS LTD
|
392
|
61.20
|
1,077,000
|
8,500,493
|
2.46
|
|
CLSA FINANCIAL PRODUCTS WTS (exch. for ZHENGZHOU YUTONG BUS CO)
|
N/A
|
4.83
|
1,297,127
|
6,266,421
|
1.81
|
|
Telecom Services
|
4.17
|
||||
|
CHINA MOBILE LTD
|
941
|
101.00
|
1,108,000
|
14,432,386
|
4.17
|
|
Consumer Staples
|
3.76
|
||||
|
NATURAL BEAUTY BIO-TECHNOLOGY LTD
|
157
|
0.65
|
50,320,000
|
4,218,237
|
1.22
|
|
WANT WANT CHINA HOLDINGS LTD
|
151
|
8.20
|
3,828,000
|
4,048,208
|
1.17
|
|
CITIGROUP GLOBAL MARKETS HOLD (exch. for SHANGHAI JAHWA UNITED)
|
N/A
|
6.86
|
371,242
|
2,546,720
|
0.74
|
|
CLSA FINANCIAL PRODUCTS WTS (exch. for SHANGHAI JAHWA UNITED)
|
N/A
|
6.92
|
315,651
|
2,185,568
|
0.63
|
|
Health Care
|
2.16
|
||||
|
CITI ACCESS (exch. for JIANGSU HENGRUI MEDICAL)
|
N/A
|
7.44
|
696,350
|
5,180,844
|
1.50
|
|
CLSA FINANCIAL PRODUCTS LTD (exch. for JIANGSU HENGRUI MEDICAL)
|
N/A
|
7.51
|
307,087
|
2,304,841
|
0.67
|
|
Materials
|
0.88
|
||||
|
TIANGONG INTERNATIONAL CO LTD
|
826
|
1.27
|
18,480,000
|
3,026,793
|
0.88
|
|
Energy
|
0.79
|
||||
|
CHINA SUNTIEN GREEN ENERGY CORP LTD
|
956
|
1.88
|
11,227,000
|
2,722,066
|
0.79
|
Source: State Street Bank and Trust Company, IDS GmbH-Analysis and Reporting Services, a subsidiary of Allianz SE.
The China Fund, Inc.
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.
©2015 Allianz Global Investors Distributors LLC.
|
Investment Products: Not FDIC Insured | May Lose Value | Not Bank Guaranteed
|
FS-CHN-0315
|