Matthews Asia Country Updates

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For the month ending October 2017

China/Hong Kong

In October, the MSCI China Index returned 3.85% and Hong Kong's Hang Seng Index returned 2.64%, both in local currency terms. China's domestic CSI300, the A share index, returned 4.44% in local currency terms (4.54% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.64 against the U.S. dollar.

Sentiment within global emerging markets remained elevated during the month amid improving global growth, stable commodity prices and subdued volatility. Geopolitical rumblings between the United States and North Korea seem to have calmed, although President Trump’s Asia trip in November alongside a contingent of U.S. warships as a “show of strength” might rekindle newsworthy rhetoric and uncertainty.
Chinese equities posted solid returns in October despite political uncertainty surrounding the 19th Party Congress. We believe economic policy will not change significantly with the government emphasizing gradual progress toward a market-driven entrepreneurial economy and financial sector derisking, along with increased transparency and access for foreigners. We also believe Xi Jinping will play a more visible role on the global stage on the topics of economics, politics and climate change. Investor confidence has been building as corporate earnings are broadening and perceived financial risks are fading. Overall credit growth has also slowed to levels commensurate with nominal GDP growth. Fewer credit excesses together with continued urban job creation, reasonable wage growth and an underlevered consumer underpin the stability of the Chinese economy. Risks exist to the extent the post-Party Congress government increases the speed and intensity of structural reform, however, which could pinch short-term growth prospects in favor of long-term stability. For more on China, please read the latest issue of Sinology.


In October, the S&P Bombay Stock Exchange 100 Index returned 7.14% in U.S. dollar terms (6.00% in local currency terms).

Indian stocks bounced back in October as the government announced a program to recapitalize certain public sector banks in hopes of raising loan growth and the demand for money. The recapitalization plan is meant to have minimal negative effects on the public deficit while bolstering capital ratios within some of India’s largest state banks. The move was interpreted positively by the market. Local Indian investors continued to channel household savings into equities and new equity issuance (IPOs) helped to elevate stock prices during the month. India’s central bank (the RBI) also moderated its growth projections for the economy to 6.7% from 7.3%1 on the back of adverse impacts on the economy due to implementation of the Goods & Services Tax. A lowering of growth projections requires attention as there is a potential longer-term impact to earnings growth. Inflation has appeared benign but needs monitoring as annual monsoons finished 5% below normal levels and the government announced an increase to the fiscal deficit target, which highlights the government’s commitment to spending and growth.


In October, the Tokyo Stock Price Index returned 5.45% in local currency terms (4.47% in U.S. dollar terms). The yen ended the month at 113.64 against the U.S. dollar.

Japanese stocks were strong in October as optimism stemmed from positive results from the snap election held in late October. Prime Minister Shinzo Abe called for a snap election, effectively bumping up the lower house elections that had been scheduled for December 2018. The Abe government coalition won a decisive victory—securing 312 seats within the lower house, a two-thirds majority. The victory boosts Abe’s chances of winning another three-year term next September. This would extend his premiership into 2021, which bodes well for continued political and policy stability.

South Korea 

In October, the Korea Composite Stock Price Index (KOSPI) returned 7.86% in U.S. dollar terms (5.39% in local currency terms). The Korean won rose by 2.23% against the U.S. dollar.

South Korea’s equity market posted some of the strongest results in the region during October. The domestic economy continues to recover and many market participants are calling for upside surprises to GDP. President Jae-in Moon’s stimulative economic and fiscal policies, together with a robust export sector, underpin the economy and have lifted corporate earnings. South Korea’s central bank remains on the sidelines, resisting the temptation to raise rates so as to not stifle the recovery. Market sentiment in South Korea is running high but moderating as prior success is creating base effects that are difficult to outperform. Geopolitical tensions could spike in November when President Trump travels to the region (Japan, South Korea, China, Vietnam and the Philippines) to “underscore his commitment to longstanding alliances” as well as to participate in the Asia–Pacific Economic Cooperation Leaders meeting. He will also speak before South Korea’s national assembly.

Southeast Asia

In October, the broad MSCI ASEAN Index gained 2.12%. In the Philippines, the PSEi Index gained 2.39% in local terms (0.86% in U.S. dollar terms) and Malaysia’s KLCI Index fell 0.15% in local terms (and -0.41% in U.S. dollar terms).

Thailand's SET Index reached another high, breaking the 1,700 level. The index has gained 11.6% year to date in local currency terms. Returns denominated in U.S. dollars have been significantly stronger, gaining 21.8% with continued appreciation of the baht. Domestic demand indicators continued to strengthen with private consumption rising 1.1%2 month over month. The expansion was led by a rise in spending on durables, which partly reflected solid auto sales. Capacity utilization improved to 63.6%3, its highest level in four years. Externally, stronger export growth momentum along with the tourism revenue boost to services has pushed the 3Q17 current account balance to US$13.7 billion.4 This is almost double the number in 2Q17and underlines the sustained upward pressure on the Thai baht. October also marked the end of a one-year mourning period for Thailand’s late king. The end of the mourning period is likely to see a surge in pent-up spending as well as increased tourism for the high season.
Indonesia's Jakarta Composite Index returned 1.85% in local currency terms (1.16% in U.S. dollar terms), breaking the 6,000 level to reach another high. During the month the Indonesian Parliament approved its 2018 budget, which was little changed from the draft budget released in August. The revised 2018 budget targeted a revenue increase of 9.1%5 year over year (YoY) and a spending increase of 4.1%5 YoY. The deficit as a percentage of GDP remained conservative at -2.2%4. The budget focus was on supporting lower income groups as the election period begins. Fuel and electricity subsidies for lower income groups were increased and welfare spending for the Social Affairs Ministry received a 21%5 increase over last year. Bank Indonesia (BI) left policy rates unchanged in October as it expected robust investment growth and private consumption to accelerate through the end of year, supporting its view for 2017 economic growth to come in at the upper end of the 5.0% to 5.4%6 range.

Singapore's Straits Times Index was the strongest performer in ASEAN, gaining 4.82% in local currency terms (4.36% in U.S. dollar terms). Advance GDP estimates for 3Q17 showed GDP growth surging to a three-year high of 4.6%,7 accelerating sharply from 2.9%7 in 2Q17. The growth surge in the third quarter came from manufacturing, which grew 15.5%7 YoY, underpinned by sustained activity in global technology supply chains. Services growth, which is more closely derived from domestic activity, ticked up slightly.

Sources: Bloomberg unless otherwise noted

1Reserve Bank of India
2Bank of Thailand
3Office of Industrial Economics, Thailand
5Ministry of Finance; Republic of Indonesia
6Bank Indonesia
7Ministry of Trade and Industry, Singapore

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.