Matthews Asia Country Updates

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For the month ending January 2018

China/Hong Kong

In January, the MSCI China Index returned 12.55% and Hong Kong's Hang Seng Index returned 9.92%, both in local currency terms. China's domestic CSI300, the A share index, returned 6.10% in local currency terms (9.80% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.29 against the U.S. dollar.

Chinese equities posted the strongest gains in the region during January. China registered stronger-than-expected GDP growth in 2017. Market participants remained confident that macro-related risks in China would be adequately managed by the government, and allow for policies that balance reasonable GDP growth with a measured deleveraging of risky sectors within the economy. In addition, a resilient consumer and services sector along with robust export growth have supported inflows into the economy, which has helped strengthen the Chinese currency. China’s top economic advisor to President Xi, Liu He, gave his first public speech overseas at Davos in January. Liu emphasized that China stood against protectionism and prioritized the mitigation of tail risks. If realized, further liberalization of Chinese financial markets could support additional foreign inflows into Chinese equity and fixed income markets.

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


In January, the S&P Bombay Stock Exchange 100 Index returned 3.82% in U.S. dollar terms (3.56% in local currency terms).

Indian stocks were among the best performers within Asia as investor inflows into broader emerging markets continued and market participants gained confidence that the economic slowdown and resulting earnings pressure is largely complete. All eyes are on the release of the fiscal-year 2019 budget expected on February 1. Expectations are that the government will stick to a fiscal deficit of 3.0% to 3.2% while channeling more spending toward infrastructure, affordable housing and rural development. Although the market expects a decent level of fiscal prudence, participants also acknowledge that policies and spending could have a populist bias leading into the general elections in 2019. One question remains as to whether India’s central bank (RBI) can ease monetary policy further, or if the prospects of higher growth and rebounding inflation will keep it on hold for now and even tilt it toward tightening in 2018.


In January, the Tokyo Stock Price Index returned 1.06% in local currency terms (4.04% in U.S. dollar terms). The yen ended the month at 109.19 against the U.S. dollar.
Japanese stocks pushed higher in January as global growth lifted the prospects for stronger exports and the domestic economy benefited from a relentless tightening of labor markets and corresponding wage growth. Japan’s job-to-applicant ratio reached 44-year highs in January and domestic nominal GDP growth is becoming more entrenched. Accommodative monetary policy continues and moderate inflation has provided needed pricing power for consumer-facing businesses. Corporate earnings are expected to post reasonable growth, supported by a fairly valued Japanese yen, reasonable domestic consumption and strong demand for Japanese products from broader Asia. Although the valuations of Japanese equities remain relatively attractive versus other developed markets, recent price gains are making it more difficult to find attractively priced shares of small and mid-cap companies.

South Korea 

In January, the Korea Composite Stock Price Index (KOSPI) returned 4.19% in U.S. dollar terms (4.01% in local currency terms). The Korean won rose by 0.27% against the U.S. dollar.

South Korea’s equity market also registered healthy gains in January as higher global growth has supported Korea’s export sector and economy more generally. Domestic demand has been moderate, supported by the Moon administration’s stimulative policies including an approved increase in the 2018 minimum wage. As of now, inflation has been persistent but seems adequately contained, meaning that the Bank of Korea’s hawkish bias could be restrained until there is further evidence of economic overheating. Korean stock valuations appear to be some of the most inexpensive in the region, even after posting impressive gains in 2017.

Southeast Asia

It was a positive start to the year for the MSCI ASEAN Index, which gained 5.70% in January. Singapore’s STI gained 5.89% in U.S. dollar terms (3.92% in local terms). Thailand’s SET Index gained 8.25% in U.S. dollar terms (4.19% in local terms) and posted record highs during the month, surpassing a level not seen since 1994. Indonesia’s JCI Index gained 5.54% in U.S. dollar terms (3.93% in local terms). The JCI also posted new highs, although it was one of the bigger laggards within Emerging Markets in January. 

Thailand’s macroeconomic environment is set to strengthen further this year, primarily with domestic-driven growth as all expenditure-side components of economic growth are primed to rise for the first time since 2012. Nationwide minimum-wage increases this year, following a subdued 2017, should stimulate a recovery of private consumption. On the investment front, several mass transit projects are finally reaching implementation after a year of delays. Thailand also greenlighted projects worth almost 1 trillion baht1 (US$31.6 billion) related to the country’s plan to build a high-tech investment zone, dubbed the Eastern Economic Corridor. Politics in Thailand may also make a comeback as 2018 is slated to be an election year, although the timeline for elections now appears likely to slip into 2019. 
During the month, Malaysia’s KLCI Index gained 8.28% in U.S. dollar terms (3.99% in local terms). Malaysia has been a beneficiary of export-related tailwinds and higher oil prices as ASEAN’s only net oil exporter. Higher oil prices are likely to generate windfall gains. With a general election set to be held by August, at least part of the oil revenue windfall might be redistributed via increased welfare payments to low-income groups supporting consumption. This month, Malaysia’s central bank raised policy rates to 3.25%2 on the back of improving domestic conditions from continuing positive spillover from the external sector to the domestic sector.
During the month, the Philippines’ PSEi Index declined -0.26% in U.S. dollar terms (2.40% in local terms). The Philippine economy performed solidly in 2017, marking the sixth consecutive year in which growth exceeded 6%. This made it one of the more sustained fast-growing economies in emerging markets. While private consumption has continued to post the largest contribution to growth, a strong driver has been that government spending growth ramped up to +14.3% YoY in 4Q17 in an encouraging display of commitment to roll out infrastructure projects. The expansion of government expenditure is a signal that the government could be finally curbing its historic pattern of underspending. 

Sources: Bloomberg unless otherwise noted

1 Bangkok Post
2 Bank Negara Malaysia

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.