Matthews Asia Country Updates

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For the month ending July 2019

China/Hong Kong

In July, the MSCI China Index returned 0.48% and Hong Kong's Hang Seng Index returned -2.06%, both in local currency terms. China's domestic CSI300, the A-share index, returned 1.46% in local currency terms (1.20% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.88 against the U.S. dollar.

After a strong June, Chinese equities were mixed as investors faced conflicting macro signals. On the one hand, economic releases in July supported a stabilized—albeit slightly weaker—economy. Increased tensions between Hong Kong and Beijing, however, as well as no meaningful progress on trade created uncertainty. President Trump's promise after the G20 meetings not to impose additional tariffs didn't last long as he threatened to slap a 10% tariff on $300 billion of remaining U.S. imports from China. Additional tariffs may complicate trade talks in September but shouldn't derail them completely as we believe both sides would benefit from a deal. China may retaliate in similar magnitude, however, by continuing to cut back on agricultural purchases or implementing its own tariffs on the remaining imports from the U.S. Regardless, we do not see a significant negative economic impact in the near term as the likelihood of Chinese monetary and fiscal easing has increased. Chinese stocks, especially A-shares, remained some of the strongest in the region year to date and Chinese corporate earnings continued to be stable even amid a moderate slowdown in economic activity.
For more on China, please read the latest issue of Sinology.


In July, the S&P Bombay Stock Exchange 100 Index returned -6.74% in U.S. dollar terms (-6.81% in local currency terms).

Indian equities fell sharply in July as post-election euphoria gave way to profit-taking. In addition, deteriorating economic data gave ammunition for the central bank (Reserve Bank of India) to cut rates. This persuaded analysts to speculate that more easing is on the horizon. Inflation remained below the central bank target of 4%, annual monsoon rains continued to track below normal levels and corporate earnings expectations disappointed analysts. The fiscal year 2020 budget release highlighted the government's fiscal discipline, causing market participants to question where economic stimulus will come from if the economic backdrop weakens. On the bright side, India's current account deficit declined marginally and international reserves bumped higher as oil prices remained stable, which helped support the Indian rupee even in a declining-rate scenario. In addition, because the Indian economy is fairly closed, the U.S.-China trade dispute should have minimal impact.


In July, the Tokyo Stock Price Index returned 0.81% in local currency terms (0.15% in U.S. dollar terms). The yen ended the month at 108.78 against the U.S. dollar.

Japanese equities were flat to slightly positive in July. The Japanese yen held its value as the U.S. Federal Reserve cut rates. The Japanese economy continued to move sideways and inflation still fell short of the Bank of Japan's 2% target. This had analysts speculating how Japanese policymakers will insulate domestic demand from a slowing global economy. Market participants expect the government to follow through with the planned consumption-tax hike in October, which reinforces the potential need for stimulative policies in the form of lower rates (potentially negative), increased fiscal spending or a rise in ETF purchases. On a positive note, stock buybacks continued at a record pace and the upper house elections in July were very supportive of the Abe government.

South Korea

In July, the Korea Composite Stock Price Index (KOSPI) returned -6.62% in U.S. dollar terms (-4.62% in local currency terms). The Korean won declined by -2.38 against the U.S. dollar.

South Korean equities were the weakest in the region in July. Tech-heavy Korean exports have suffered year to date as investors feared the broad reach of the U.S.—China trade dispute would affect Korean companies. South Korean firms may be subject to second-order effects in terms of their participation in the supply chain of certain Chinese-related exports to the U.S. Korean corporate earnings were weak. Stock prices were low but valuations were above five-year averages.

Southeast Asia

In July, the broader MSCI ASEAN Index returned -0.99% in U.S. dollar terms. 

The Philippines PSEi index returned 1.41% (0.63% in local currency terms). President Duterte marked his midterm with an 85% approval rating, according to Pulse Asia Research. The president's annual State of the Nation Address included pushing Congress to pass the second tax-reform package (TRABAHO bill), which aims to gradually lower the corporate income tax rate to 20%, to rationalize existing indirect tax exemptions and to provide incentives for the small and medium-sized enterprises sector, which is expected to generate a significant increase in jobs. One topic missing in the president's address was a Charter change and Federalism, suggesting they are off the agenda. This is good news as the issues are contentious and would have distracted from the rest of the legislative agenda. Overall, the pragmatic address added to the positive sentiment, driven by abating inflationary concerns and improving bank liquidity and a pickup in infrastructure spending.

Indonesia's JCI index returned 1.35% (0.63% in local currency terms). Indonesia's central bank cut its policy rate by 25 basis points to 5.75% from 6%, while noting that “Bank Indonesia (BI) sees open space for accommodative monetary policy in line with the low inflation forecast and the need to push for further economic growth momentum.” This signals a shift in policy stance to be growth-oriented away from 2018's single-minded focus on stability, though interest rate policy will still remain primarily a function of external balances and the Indonesian rupiah. If the external environment stays benign, BI's increased comfort level should support more cuts in 2020 given the high real interest rate differential with the U.S. dollar. The coordinated shift to a growth focus among the economic agencies is evident in Ministry of Finance (MOF) statements regarding corporate tax cuts, tax restitution (VAT refunds being processed at the fastest pace in five years) and property sector stimuli.
Malaysia's KLCI index returned -1.81% (-2.20% in local currency terms). Malaysia's central bank kept policy rates on hold at 3% and highlighted how Malaysian growth has held up well so far this year in the context of a deteriorating global economic picture and no expectations for further imminent monetary policy accommodation.  Growing downside risks to growth may suggest otherwise. The trade balance has remained positive but export and import growth trends have been weakening and are likely to slow further with the re-escalation of trade tensions between the U.S. and China. Malaysia's inflation also spiked in June to 1.5% year-over-year after the Goods and Services Tax was removed a year ago. This was less than expected, however. In month-to-month terms, there was no rise in headline inflation. The absence of price pressures may allow the Malaysian central bank to cut rates this year.

Sources: Bloomberg, CEIC

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.