Matthews Asia Country Updates

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For the month ending March 2018

China/Hong Kong

In March, the MSCI China Index returned -3.01% and Hong Kong's Hang Seng Index returned -2.33%, both in local currency terms.  China's domestic CSI300, the A share index, returned -3.11% in local currency terms (-2.45% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.28 against the U.S. dollar.

Chinese equities were down in March as fears of escalating trade rhetoric pressured shares and sparked volatility. Going into Q2, market participants seem focused on the potential negative impacts of a full-blown trade war with the U.S. We believe China could be less exposed, however, than the market perceives. First, China’s measured responses indicate it has no interest in an escalated trade war. Secondly and importantly, China’s economy is no longer export-driven, meaning that taxes on its shipments will have a modest impact. Net exports (the value of exports minus the value of imports) account for only 2% of China’s GDP. In contrast, domestic consumption accounts for the majority of China’s economic growth and more than half of its GDP. On a positive note, Bloomberg announced that Chinese renminbi-denominated government and policy bank bonds will be included in the Bloomberg Barclays Global Aggregate Index starting in April 2019 (subject to certain operational enhancements). Chinese bond inclusion will scale up slowly over a 20-month period, with China’s weight reaching 5.49% of the overall index. When fully included, China will represent the fourth-largest currency weight, after that of the U.S. dollar, the euro and the yen. Assuming that the assets managed to the Bloomberg Barclays Global Aggregate Index stay flat, we estimate that approximately US$100 billion would be flowing into China’s bond market just from passive flows. For more on China, please read the latest issue of Sinology.


In March, the S&P Bombay Stock Exchange 100 Index returned -3.12% in U.S. dollar terms (-3.17% in local currency terms).

Indian stocks were weak in March and have lagged behind global emerging markets thus far in 2018. A more sanguine environment for corporate earnings has been offset recently with macro concerns. Politics has moved to the forefront as the ruling coalition is slowly losing seats in the general assembly. Market participants are skeptical that fiscal deficit targets will be honored given 2019 will be an election year and most expect increased government spending, especially in rural areas. Secondly, February news headlines included a significant public sector bank scandal, a creation of a new long-term capital gains tax on investments and worries about higher oil import prices and their effect on inflation. Although corporate earnings seem to be pointing to a generally improving economy, short-term macro headlines are dampening sentiment, which has pressured Indian equities. One positive is that recent market weakness has driven valuations of Indian equities more toward their long term averages, which should support prices as the macro environment stabilizes.


In March, the Tokyo Stock Price Index returned -3.12% in local currency terms (-2.83% in U.S. dollar terms). The yen ended the month at 106.28 against the U.S. dollar.

Japanese equity returns suffered weakness alongside most major developed markets in March. Japanese equities were plagued by several concerns including global trade tensions, political noise related to Prime Minister Shinzo Abe (and his cabinet’s deteriorating approval rating) and a persistently strong yen. As a result, foreigners have been net sellers of Japanese equities in 2018. Going forward, however, we expect the marginal demand for shares to come from continued corporate buybacks and the Bank of Japan’s purchases of exchange traded funds. In addition, the domestic economy continues to benefit from stronger exports (especially toward China) and reasonable wage growth allowing for a moderate hike in both producer and consumer prices, which has supported earnings growth in Japan.

South Korea 

In March, the Korea Composite Stock Price Index (KOSPI) returned 2.80% in U.S. dollar terms (0.76% in local currency terms). The Korean won rose by 1.84% against the U.S. dollar.

South Korea’s equities outperformed most Asian markets in March, reflecting a relatively benign macro environment. Domestic growth remained stable and South Korea’s exports continued to be robust, boosting the country’s current account surplus and foreign exchange reserves. Market participants expect a gradual increase in the country’s policy rates, highlighting muted inflationary pressures and steady economic growth. South Korea’s government surprised the market in early March by reappointing central bank chief Lee Ju-yeol to a second term—a rare occurrence in South Korea—which should reinforce continuity in monetary policy.

Southeast Asia

In March, externally induced volatility weighed on Southeast Asian markets and pushed the broader MSCI ASEAN Index -2.21% lower for the month.

The Philippines’ PSEi Index was the weakest performer in the region for the third month YTD. Equity investors cheered the Philippine central bank’s (BSP) decision to hold off on a rate hike during the month. The announcement was not enough to boost the market, however, and the index ended the month down -5.83% in U.S dollar terms (-5.45% in local terms). Weakness was precipitated by inflation worries and concern that the BSP would be falling behind the curve if policy remained accommodative. In a global tightening environment this makes the currency vulnerable, as seen in the Philippine peso’s performance this year to date (-4.07% vs. the U.S. dollar) making it the second-worst performer in Asia. The country’s Monetary Board, however, may be more open to tightening at the next policy meeting.

Following an all-time high set in January, Indonesia’s JCI index retraced its gains for a second month amid global volatility and finished the month -5.70% lower in U.S. dollar terms (-5.96% in local currency terms). Green shoots of growth are appearing, however, and are incrementally supportive of activity levels. The latest BI survey data show looser purse strings in lower-income households after a challenging 2017. Middle- and upper-income segments have been more robust and have seen gradual recovery in retail and vehicle sales growth as well as residential property take-up. Positive momentum of private consumption should continue to be supported through the year as government spending is deployed, employment levels improve as commodities-related sectors start to expand following an extended price rally in commodities, and employment and income benefits accrue from the ramp up to the 2018 Asian Games to be hosted in Indonesia.

The Thailand SET Index fell -1.48% in U.S. dollar terms (-2.37% in local currency terms). The Bank of Thailand left its policy rate unchanged at 1.50%. Solid external demand from 2017 has helped a gradual recovery in private consumption and was further supported by solid average wage growth, owing both to a minimum wage hike and increasing hours worked in the manufacturing sector as capacity utilization rises. Thailand currently boasts one of the widest current account surpluses in the region, which provides a strong buffer to domestic interest rates and liquidity. This is likely to prove useful as external conditions tighten. Overall, the environment looks supportive of earnings upgrades from increasing domestic demand momentum.

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.