Principal Risks of
Investment
There is no guarantee that your investment in the Fund
will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or
regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption
and military activity. The economies of many Asian countries differ from the economies of
more developed countries in many respects, such as rate of growth, inflation, capital
reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies (e.g., allocation of resources and other preferential treatment),
monetary policy, management of currency exchange rates, and management of the payment of
foreign currency-denominated obligations. Changes in these policies could adversely
impact affected industries or companies in China. As its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and
investment cycles. The Chinese government has been accused of state-sponsored
cyberattacks against foreign governments and companies, and responses to such activity,
including sanctions, tariffs or cyberattacks on the Chinese government or Chinese companies, may negatively
affect China’s economy and Chinese securities issuers. In
addition, the current political climate has intensified concerns about trade tariffs or
trade disputes with China’s major trading partners, including a potential trade war between the U.S. and China. These consequences may trigger a significant reduction in international trade, shortages or
oversupply of certain manufactured goods, substantial price increases or decreases of goods, inflationary pressures, and possible failure of individual companies and/or large segments of the
foreign export industry in China with a potentially negative impact on the
Fund’s investments. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms,
and the Chinese government’s response to them, considerable political uncertainty
continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China
were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively
affected and have an adverse effect on the Fund’s investments.
Geopolitical Events Risk:
The interconnectivity between global economies and financial markets increases the
likelihood that events or conditions in one region or financial market may adversely
impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or
resources, trade disputes, supply chain disruptions, natural disasters, climate change and
climate-related events, pandemics, epidemics, terrorism, international conflicts,
cybersecurity events, regulatory events and
governmental or quasi-governmental actions. The occurrence of global events similar to those in recent
years may result in market volatility and may have long term effects on the global
financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value
of the foreign currency increasing or decreasing against the value of the U.S. dollar.
The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not
anticipate doing so at this time. Additionally, China may utilize formal or informal
currency-exchange controls or “capital controls.” Capital controls may impose
restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging Markets: Many Asian countries are considered emerging markets. Such markets are often less stable politically and economically than developed markets such as the U.S., and investing in these
markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies;
higher brokerage costs and thinner trading markets as compared to those in developed
countries; the possibility of currency transfer restrictions; and the risk of
expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many emerging market countries, and the stock exchanges and
brokerage industries in many emerging market countries typically do not have the level of
government oversight as do those in the U.S. Securities markets of many emerging market countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have
substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
Risks Associated with Investing in Innovative Companies: The standards for assessing innovative companies tend to have many subjective characteristics, can be difficult to analyze, and frequently involve a balancing of a
company’s business plans, objectives, actual conduct and other factors. The definition of innovators can vary over different periods and can evolve over time. They may also be difficult to
apply consistently across regions, countries, industries or sectors.
U.S. Trade Policy Risk: The U.S. presidential administration has enacted significant new tariffs, and proposed to enact
additional tariffs, on imports from certain countries. Additionally, there has been
ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. There continues to exist significant uncertainty about the future relationship between the U.S. and
other countries with respect to such trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic
conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the U.S. Any of these factors could
depress economic activity and restrict a portfolio company’s access to suppliers or customers and have a material adverse effect on its business, financial condition or operations, which in turn could
negatively impact the Fund.