Matthews Asia Country Updates

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For the month ending July 2018

China/Hong Kong

In July, the MSCI China Index returned -2.40% and Hong Kong's Hang Seng Index returned -0.46%, both in local currency terms.  China's domestic CSI300, the A share index, returned 1.01% in local currency terms (-1.92% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.82 against the U.S. dollar.
Asian and global emerging markets rebounded slightly in July as trade tensions subsided. China backed off its aggressive derisking path, the U.S. dollar halted its rise against many major currencies (China being an exception) and investors started to feel that markets were temporarily pricing in adequate risks. Chinese shares were among the weakest in the Asia region in U.S. dollar terms as the Chinese currency continued to slide against the U.S. dollar in July. In local currency terms, stock prices stopped sliding as markets reacted to supportive government actions. First, China refused to retaliate against the U.S. declaration of a potential 10% tariff on an additional US$200 billion worth of imported Chinese goods. Secondly, late in July the Politburo signaled that it remained supportive of stable employment, financial markets, foreign investment and international trade. At the same time, the Chinese government opened the door to utilizing fiscal stimulus and slowing the deleveraging agenda so that borrowing among small- and medium-size businesses could normalize, and so risks of a negative economic shock could be minimized. In summary, China's actions in July appeared supportive of markets, especially in terms of its willingness to loosen monetary conditions if necessary in order to support the local economy.

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


In July, the S&P Bombay Stock Exchange 100 Index returned 6.09% in U.S. dollar terms (6.06% in local currency terms).

India's equity market was once again a relative outperformer in July as the local economy continued to push higher, reflecting a declining headwind from prior tax reforms and demonetization. Foreign investors have been less constructive than local market players as foreigners perceive India to be vulnerable to higher energy prices. India's reliance on energy imports and a deteriorating current account pressured its currency, the rupee, and brought inflation concerns to investors, especially foreigners. However, government revenue has returned to more normal levels, economic growth appears to remain robust and corporate earnings momentum is improving. In addition, because India is a relatively closed economy, many market participants view India to be somewhat isolated from trade related risks. Lastly, the Indian Central Bank (RBI) raised rates again on the last day of July which illustrates their commitment to inflation control while also admitting that the local economy is back on strong footing.


In July, the Tokyo Stock Price Index returned 1.30% in local currency terms (0.38% in U.S. dollar terms). The yen ended the month at 111.86 against the U.S. dollar.

Japanese equities squeaked out a slight gain in July as trade talks and related controversy subsided and early indications point to Japanese corporate earnings remaining healthy. There were several policy related announcements toward the end of July which hint towards future normalization of interest rates. The Bank of Japan (BOJ) announced its intentions to allow more flexibility around the ‹zero 10yr rate' policy to cushion the impact of potential side effects and negative shocks related to the extended period of low local rates. In addition, the government announced a tweak to its ETF buying program such that future purchases will favor more small and mid-cap TOPIX listed companies and fewer large cap Nikkei listed stocks. Another interesting trend surrounds the potential easing of Japan's immigration policy to mitigate its adverse population decline. Immigration policy changes will be slow moving but could potentially target sectors facing staffing shortages. Lastly, it appears more likely that Prime Minister Abe will win a third term as the leader of the Liberal Democratic Party (LDP) this September which should help with continuity of fiscal and monetary policy.

South Korea

In July, the Korea Composite Stock Price Index (KOSPI) returned -1.20% in U.S. dollar terms (-1.33% in local currency terms). The Korean won declined by -0.36% against the U.S. dollar.

South Korea's equities lagged that of emerging markets and broader Asia once again as investors remained unconvinced that the country would sidestep trade-related complications and a slowdown in the Chinese economy driven via deleveraging and tighter monetary conditions. South Korean exports slowed slightly in the second quarter and consumer confidence weakened slightly, reflecting weaker stock prices. As a result, the Korean government is expected to prime its economy, utilizing higher 2019 budget expenditures. Some room for optimism exists as South Korean stock price valuations are among the region's most attractive. Recently announced Chinese government intentions to loosen monetary conditions could also help boost demand for Korean products.

Southeast Asia

In July, the broader MSCI ASEAN Index bounced to post a 4.27% gain as sentiment across emerging markets improved. 
The Philippines' PSEi Index reversed the prior month's decline after jumping 7.39% in U.S. dollar terms (6.68% in local currency terms). The higher inflation trajectory for the Philippines likely has been fueled by tax increases but it compelled its central bank to raise policy rates by a total of 50 basis points (0.50%) for May and June1. Greater public concern about inflation also has contributed to a fall in President Duterte's approval ratings. Inflation readings, however, are expected to be softer from the final quarter of the year. The latest headline inflation reading of 5.2%—beyond the target range of 2% to 4%—and hawkish commentary from the central bank set expectations for a rate increase at the upcoming policy meeting. A key rice tariffication bill expected in 2H18, meanwhile, would lower the price of rice, which is a major component of the CPI basket. 

Singapore's STI Index returned 2.19% in U.S. dollar terms (2.02% in local currency terms). As an economy that is sensitive to external demand, Singapore has seen weaker semiconductor exports and purchasing managers' index levels have started to roll over, taking into account the potential for growth headwinds due to recent trade tensions. We also see, however, broadening domestic demand and robust non-semiconductor export growth that has supported overall growth—3.8% GDP growth for the second quarter of this year based on advanced estimates. 
Malaysia's KLCI Index was up 5.16% in U.S. dollar terms (5.50% in local currency terms). Headline inflation was at 0.8%, reflecting the cancellation of the Goods and Services Tax that took effect June 1. Consumer goods in the basket are expected to trend down and stabilize after the reintroduction of the Sales and Services Tax (SST) on September 1. The disinflationary trend likely will keep its central bank from raising interest rates over the coming months. Malaysian infrastructure growth should increase as suspensions of major infrastructure projects such as the East—Coast Rail Link appear to be temporary. Malaysia is expected to send a delegation to China to renegotiate the cost of large-scale projects awarded to Chinese firms. 

Sources: Bloomberg unless otherwise noted

1 Bangko Sentral NG Pilipinas

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.