Matthews Asia Country Updates

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For the month ending September 2017

China/Hong Kong

In September, the MSCI China Index returned 0.84% and Hong Kong's Hang Seng Index returned -1.17%, both in local currency terms. China's domestic CSI300, the A share index, returned 0.47% in local currency terms (-0.13% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.65 against the U.S. dollar.

In China, as with elsewhere in Asia during September, tailwinds of corporate profitability and supportive macro conditions benefited markets. China’s political transition within the 19th Party Congress (and subsequent policy announcements), however, may pose some risks entering the fourth quarter. Recent gains in Chinese equities mainly were driven by earnings improvements, but also important were government policies that stressed continued market stability and stable economic growth before the Party Congress set for mid-October. Additionally, domestic optimism has been underpinned by a buoyant property sector, which has broadened outside the economic hubs of Beijing, Shanghai, Shenzhen and Guangzhou and into regional tier-two and tier-three cities. Moderate wage increases and the wealth effects of appreciating real estate prices have supported the Chinese consumer. For more on China, please read the latest issue of Sinology.


In September, the S&P Bombay Stock Exchange 100 Index returned -3.39% in U.S. dollar terms (-1.32% in local currency terms).

Indian stocks fell during the month amid a debate between those who believe current valuations have priced in lackluster earnings prospects and those who point to a strengthening financialization of household savings in favor of increased investment in equities. The recent implementation of reforms, including last November’s demonetization, this July’s rollout of GST, the new real estate regulations act and enhanced regulatory requirements for gold purchases, have all contributed to the redistribution of household savings in equities. Higher household investment into equities has surprised market participants and created a robust source of equity demand. Estimates of equity inflows in August alone reached US$4.1 billion, the highest monthly inflow on record. In addition, there is a structural argument that household flows could continue given their very low relative allocation to equities compared to their allocation to fixed income investments. Inflation appears benign for now but should be monitored as annual monsoons finished below normal levels, and the government recently announced an increase to the fiscal deficit target, which highlights the government’s commitment to spending and growth.


In September, the Tokyo Stock Price Index returned 4.22% in local currency terms (1.94% in U.S. dollar terms). The yen ended the month at 112.51 against the U.S. dollar. 

Japan’s equity markets gained during the month as its macro environment remained supportive. Prime Minister Shinzo Abe has called for a snap election, effectively bringing forward the Lower House elections, which had originally been scheduled for December 2018. The Abe government is looking to take advantage of a splintered opposition to solidify power and continue with its agenda. Abe’s approval ratings have been recovering in recent months amid a recent cabinet reshuffle and provocations from North Korea, which support Abe’s calls for strong defense. Based on recent opinion polls, it seems unlikely that Abe and the ruling Liberal Democratic Party (LDP) will lose a majority in the Lower House. Therefore, the current policy framework in place is unlikely to change. One reason cited for the snap election, however, is to change the allocation of additional tax revenue from the consumption tax hike scheduled for October 2019. Abe is calling for the additional tax revenue to be allocated toward education and child care spending rather than paying down debt. The call for a consumption tax hike is worrisome as a similar action in 2014 was a net negative for the economy.

South Korea 

In September, the Korea Composite Stock Price Index (KOSPI) returned -0.41% in U.S. dollar terms (1.32% in local currency terms). The Korean won declined by -1.57% against the U.S. dollar.

Many market participants have called for upside surprises to GDP growth given President Moon Jae-in’s stimulative economic and fiscal policies, which revolve around increased social welfare and job creation. A proposed hike to South Korea’s minimum wage in 2018 may underpin the domestic economy while stoking inflation and fears of moderately higher interest rates. So far, a revitalized global growth environment has supported Korean exports, which have registered strong results in each of the first eight months of 2017 and have been consistent among most export partner countries and major export products. Market sentiment in Korea has recently been running high but moderating as prior success is creating base effects that are difficult to outperform. Geopolitical tensions have spiked in recent months as North Korea seems committed to its nuclear program while showing off its progress in developing intercontinental ballistic missile capabilities.

Southeast Asia

In September, the broader index made slight gains, returning 0.40% in U.S. dollar terms. As optimism began to pick up in Thailand, the nation's SET Index moved up 3.74% in local terms (and 3.37% in U.S. dollar terms). The Philippines' PSEi Index gained 2.69% in local terms and 3.15% in U.S. dollar terms. Indonesia's Jakarta Composite Index posted a modest return of 0.63% in local terms (-0.39% in U.S. dollar terms). Singapore and Malaysia retraced gains from earlier this year, falling -1.71% and -0.61% (-1.65% and 0.52% in U.S. dollar terms respectively).
Investor optimism was lifted as data continued to underscore a broad economic recovery driven by a rise in external demand and strong tourism flows. This, in turn, supported manufacturing and trade balances. The positive trend of tourist arrivals has continued, growing 8.7%1 in August. Export growth of 15.8% in August reflected growth across various segments.

The strong current account surplus this year has put appreciative pressure on Thailand’s currency, the baht, returning 6.8% year to date, and has put pressure on small and medium enterprises that typically do not hedge currency risk. There are, however, signs of recovery in domestic demand, consumer confidence has gradually moved higher and private consumption also was up. At the end of the month, despite the pressure from the Ministry of Finance, the Bank of Thailand held policy rates at 1.5%2, citing a focus on financial stability and the avoidance of excessive risk taking.

Indonesia saw net foreign equity outflows of US$843 million in September, reflecting subsiding excitement over a recovery this year. Following electricity tariff hikes and fuel subsidy removals, the consumer has borne the brunt of the cost of reform and, ultimately, domestic consumption has been slow to pick up. 

Sources: Bloomberg unless otherwise noted

1CEIC Generate
2Bank of Thailand

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.