Matthews Asia Country Updates

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For the month ending August 2017

China/Hong Kong

In August, the MSCI China Index returned 4.45% and Hong Kong's Hang Seng Index returned 3.06%, both in local currency terms. China's domestic CSI300, the A share index, returned 2.47% in local currency terms (4.47% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.59 against the U.S. dollar. 

Chinese equities listed in Hong Kong posted some of the strongest regional returns for the third straight month and are up approximately 40% year to date. Investor optimism has been fueled by a perceived reduction of financial risk. The Chinese currency remains remarkably stable and the government has made meaningful progress reigning in the risk and leverage associated with wealth management products (“WMPs”) as the growth creation of those products is now more in line with the growth rate of bank deposits. For more on China, please read the latest issue of Sinology.


Indian stocks took a breather—down slightly in August after posting some of their best results for the year in July. The S&P Bombay Stock Exchange 100 Index returned -0.73% in U.S. dollar terms (-1.03% in local currency terms) for August. Year to date, positive momentum has been driven by a relatively smooth GST implementation of India’s new Goods and Services Tax, which started on July 1; annual monsoon rainfall that was slightly low but within normal ranges in August; and an Indian central bank (RBI) bias toward cutting its base interest rate. We also saw strong foreign and domestic flows into Indian equities. Stock prices have pushed higher year to date, especially within the energy, telecom and financials sectors, despite a lackluster corporate earnings environment and somewhat stretched equity valuations. Risks going forward include poor rainfall accumulation during the remainder of the monsoon season, a sustained price rise in oil prices and additional pressures on earnings momentum.


In August, the Tokyo Stock Price Index returned -0.05% in local currency terms (0.19% in U.S. dollar terms). The yen ended the month at 109.98 against the U.S. dollar.

Japanese stocks were largely flat in August along with many other developed market indices. Market participants are still digesting the depressed approval ratings of Prime Minister Shinzo Abe’s administration (although the ratings have stabilized at lower levels) and the Bank of Japan’s admission that its ETF purchases have “distorted the market.” Abe’s administration is trying to deflect attention away from the festering political scandal and toward issues driving the economy. Japan’s macro environment continues to be favorable. Second quarter GDP growth rates surprised the market reaching +4% quarter-on-quarter (with consensus closer to +2.5%), which has pressured analysts to revise their full year growth expectations upward. Domestic demand, manufacturing PMI and consumption continue to track broadly higher. Japan has finally shed the significant output gap (excess supply and lack of demand) that plagued it for two decades. Japanese companies are feeling capacity shortages and the tight labor market. Lower unemployment combined with growing corporate earnings should support higher wages and domestic consumption. In addition, domestic GDP is being supported by robust inbound tourism. In 2017, we expect more than 25 million inbound tourists to visit Japan—over three times what it registered in 2012. Overall, Japan’s macro risks continue to fade. 

South Korea

In August, the Korea Composite Stock Price Index (KOSPI) returned -1.83% in U.S. dollar terms (-1.64% in local currency terms). The Korean won declined by -0.73% against the U.S. dollar.

South Korea’s equity market weakened for the first month all year as investors paused to evaluate regional tensions spurred by North Korea’s rhetoric and missile tests. That said, Korean stocks posted some of Asia’s strongest results year to date. President Moon Jae-in has been positive for investor sentiment as corporate governance, increased domestic consumption, social welfare and job creation are all targets for improvement. To facilitate his agenda, President Moon is strongly advocating greater fiscal stimulus to boost GDP growth. Further tailwinds are being created by a robust export sector and a central bank (BoK) that is reluctant to raise rates to stifle the recovery. Risks to positive sentiment revolve around the elevation of rhetoric and potential response to actions in North Korea. Although actual military engagement seems to be a very low “tail risk,” implications of escalating geopolitical risk include damaging U.S.–China relations and a hit to investor confidence in the region.

Southeast Asia

In August, the broader MSCI ASEAN Index gained 0.50%. Thailand's SET Index was the strongest performer in the region gaining 3.32% (and 3.64% in U.S. dollar terms). Malaysia's KLCI Index gained 1.17% in local currency terms (and 1.43% in U.S. dollar terms) and the Indonesian Jakarta Composite Index was 0.41% higher (and 0.34% in U.S. dollar terms). Singapore's Straits Times Index fell 0.45% (fell 0.51% in U.S. dollar terms), and Philippines' PSEI Index fell by 0.44% and was down 1.74% in U.S. dollar terms. 

Higher-than-expected second quarter real GDP growth of 3.7% year-over-year (YoY) helped contribute to Thailand’s strong SET Index performance. GDP growth accelerated from 3.3% in 1Q17, driven mainly by private consumption, and showed strong gains in agriculture, which nearly tripled to 15.8% YoY. Economic growth has charted a steady recovery since the third quarter of last year, following the end of a sustained three-year drought. Despite concerns surrounding former Prime Minister Yingluck, not much is likely to happen, as the pro-Thaksin Shinawatra Pheu Thai Party (PTP) and its red shirt allies are keen to contest the next election scheduled for 2018 and will try to avoid any actions that prejudice the military against them.

Indonesia surprised the market by lowering its seven-day reverse repo rate by 25 basis points (bps) to 4.50%, the first cut since October 2016. Overnight deposit rates and lending rates were also lowered by 25 bps, each to 3.75% and 5.25% respectively due to softer-than-expected 2Q17 GDP growth and inflation. With weaker domestic household consumption and a dovish view on the external front, the policy move was basically a tradeoff between two factors: the need to boost growth momentum versus keeping additional insurance against global policy-induced volatility in capital flows, in the form of a wide real interest rate differential.

The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. 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. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.