Korea and Japan have been trailblazers in terms of making the virtual marketplace platform, through which merchants and manufacturers of all sizes can sell goods to consumers, an e-commerce model in Asia. Unlike in the U.S. and Europe, where many retailers sell directly to customers from their own websites and handle the details of commerce themselves, most Asian e-commerce takes place on “megasites” or virtual markets. Not only do these online marketplaces help retail sales in more developed parts of Asia, they also boost other industries, such as online payment service providers, IT services, delivery and logistics.

Before I visit Korea, I often order books online and have them delivered to family there since Korea’s online marketplaces tend to have a wide selection. I also find making purchases on such websites, which tend to offer free one-day shipping, cheap and easy to use.

In China, the e-commerce market had less than US$5 billion in sales in 2005. Since then, however, it has fully embraced the concept of digital marketplaces and is expected to soon surpass the U.S. with more than US$300 billion in total transactions this year. Some 90% of online retail sales in China are made via online marketplaces, and the lack of well-developed brick and mortar merchants has helped the industry grow. Yet China’s e-commerce industry appears to have even more room for growth. The country’s Internet penetration rate was about 40% last year compared to approximately 82% in South Korea (the highest in Asia) and about 80% for Japan. As Internet penetration rises and China’s physical logistics infrastructure develops further, its e-commerce industry seems likely to experience some growth spurts, particularly in its currently less urban regions.

In India and parts of Southeast Asia, e-commerce development has been slower due to lack of infrastructure. As of last year, Internet penetration in India was at about 11% of the population, while Indonesia has hovered around 22%. In these countries, however as with China’s less developed areas the rapid adoption of smartphones and other mobile devices seems likely to cause a “leapfrog” effect in which online penetration and e-commerce may occur more quickly than with personal computers and fixed broadband connections. I believe this unique development of the virtual marketplace may further enable and strengthen Asia’s consumption-driven economies with far wider reach than many traditional retailers are currently able to attain.

You should consider the investment objectives, risks, charges and expenses of the Matthews Asia Funds carefully before making an investment decision. This and other information about the Funds is contained in the prospectus, which may also be obtained by calling 800.789.ASIA (2742). Please read the prospectus carefully before you invest or send money as it explains the risks associated with investing in international and emerging markets. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector or geographic location. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies .

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information.

Matthews Asia Funds are distributed in the United States by Foreside Funds Distributors LLC

Matthews Asia Funds are distributed in Latin America by HMC Partners

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