Matthews Asia Country Updates

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For the month ending December 2017

China/Hong Kong

In December, the MSCI China Index returned 2.01% and Hong Kong's Hang Seng Index returned 2.56%, both in local currency terms. China's domestic CSI300, the A share index, returned 0.62% in local currency terms (2.14% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.51 against the U.S. dollar.
The 19th Party Congress (October 2017) and the Central Economic Work Conference (CEWC, December 2017) announced their priorities for the coming five-year period. The government announced the bias toward the “quality of economic growth” versus “quantity of growth.” This means that the sustainability of growth should take priority over the absolute level and that policy should favor the curbing of significant tail risks, poverty reduction and increased environmental protection. Overall, we expect further progress in the reform of state-owned enterprises and the management of supply-side excesses such as the deliberate deleveraging of risky sectors—including the monitoring of wealth management products and the containment of “hot” real estate markets. 2018 could invite further liberalization of financial markets, starting with the inclusion of China’s domestic A-shares within the MSCI indices and increased non-domestic participation within local bond markets.

For more on China, please read the latest issue of Sinology.


In December, the S&P Bombay Stock Exchange 100 Index returned 4.19% in U.S. dollar terms (3.03% in local currency terms). Indian stocks posted some of the strongest December returns in the region as domestic investors continued to pour household savings into equities. The state elections in Gujurat were less than stellar, but they re-enforced Prime Minister Narendra Modi’s BJP party strength. The Modi government enjoys a high approval rating and a legislative majority, which has allowed for the passage of difficult reforms. The Goods and Services Tax (GST) may prove to be India’s most important reform in recent history as it breaks down barriers of interstate commerce, allowing for more efficient transportation of products and the simplification of supply chains. However, the implementation of the GST has not come without difficulty. The economy has taken a temporary hit, tax collection has been slow to recover and corporate earnings have suffered. That said, economic headwinds seem to be fading as businesses adjust to the new tax regime. Digital payments have erupted and online commerce is just beginning. Politics are stable, business confidence is improving and domestic households are diversifying into equities. Overall, although India’s equity valuations remain challenging, its benign macro backdrop combined with improved earnings momentum could serve equity markets well going into 2018.


In December, the Tokyo Stock Price Index returned 1.54% in local currency terms (1.48% in U.S. dollar terms). The yen ended the month at 112.69 against the U.S. dollar.

Japan seems to be in a sweet spot as Abenomics has worked to support labor markets and domestic demand, and the uptick in the global economy has underpinned exported-oriented businesses. The appetite for Japanese products from broader Asia continues to accelerate, especially in areas such as industrial automation and consumer-related goods. Japanese stocks recently broke through 25-year trading ranges and global investors are taking notice. Prime Minister Shinzo Abe’s victory in October’s snap election should support continuity of his government policies through 2021. Corporate earnings revisions continue to grind higher and valuations for those earnings remain relatively attractive relative to other developed markets. That said, recent price appreciation is making it increasingly difficult to find attractively priced, quality small/mid cap companies.

South Korea 

In December, the Korea Composite Stock Price Index (KOSPI) returned 1.14% in U.S. dollar terms (-0.29% in local currency terms). The Korean won rose by 1.93% against the U.S. dollar.

South Korea’s equity market was one of the better performers in December and for the year 2017. The domestic economy continues on its path of recovery and annual exports jumped, causing many market participants to call for upside surprises to GDP. President Moon’s stimulative economic and fiscal policies, together with a robust export sector, underpin the economy and have worked to lift corporate earnings. South Korea’s central bank remains on the sidelines and has resisted the temptation to raise rates as to not stifle the recovery. Earlier this year, President Moon declared a minimum wage hike of about 16% for 2018. This should underpin the domestic economy while stoking inflation and fears of moderately higher interest rates. Geopolitical tensions have calmed recently but remain a source of uncertainty for the economy.

Southeast Asia

In December, the broader MSCI ASEAN Index posted strong gains of 4.56% and outperformed the MSCI Asia ex Japan Index by two percentage points. 
Indonesia's JCI Index was the top performer across Asia, increasing 6.46% in U.S. dollar terms (6.84% in local currency terms) and closed the year at an all-time high after the nation's credit rating was upgraded by Fitch to BBB from BBB-. It was the second credit upgrade in 2017 following an upgrade from S&P in May. Accelerating loan growth, government infrastructure spending and recovery signs of domestic activity align with our view that 2018 will show further improvement in economic momentum, particularly as Indonesia heads into the presidential election cycle and shifts to a more growth-oriented stance. Transport disruptions from volcanic eruptions in late 2017 appeared minimal, with tourist arrivals posting solid year-on-year growth of 22%1 for the January to November period.
Philippines’ PSEi Index gained 4.46% in U.S. dollar terms (3.78% in local currency terms). Fitch also raised the Philippines’ sovereign credit rating during the month, to BBB from BBB-. The Philippine government passed a key tax reform bill that raised the minimum threshold for personal income tax, giving more disposable income to households. The bill also helps fund a US$165 billion "Build, Build, Build" infrastructure plan spanning 75 large projects that should underpin productivity gains over the next two decades. December also saw a turnaround in net equity flows as foreign investors turned net buyers after seven consecutive months of net selling. 
Malaysia's KLCI Index was second-highest gainer with 5.96% in U.S dollar terms (and 5.16% in local currency terms), mainly driven by financials and health care. Thailand's SET Index returned 3.57% (3.42% in local currency terms). Singapore's STI Index remained relatively unchanged for the month. Singapore's flash estimate growth of 3.1% for 4Q17 showed solid services growth, suggesting improved domestic demand. Employment indicators, however, remained mixed. 

Sources: Bloomberg unless otherwise noted

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.