Matthews Asia Country Updates

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For the month ending September 2019

China/Hong Kong

In September, the MSCI China Index returned 0.03% and Hong Kong's Hang Seng Index returned 1.87%, both in local currency terms. China's domestic CSI300, the A-share index, returned 0.48% in local currency terms (0.59% in U.S. dollar terms). The renminbi (RMB), ended the month at 7.15 against the U.S. dollar.

Chinese equities were flat in September. A-shares posted slight gains while small caps posted slight losses. Although the near-term trade negotiation outcome seems unpredictable, the popularity of strong trade war rhetoric in the U.S. seems to be fading as the U.S. economy shows signs of weakness. Hong Kong protestors remained diligent and Chinese economic data continues to reflect a moderate slowdown. Further signs of economic weakness increases the likelihood of Chinese monetary and fiscal easing. In fact, we believe that Chinese policymakers stand ready to stimulate activity—aggressively if needed—which should limit economic weakness and ultimately help support corporate earnings.
For more on China, please read the latest issue of Sinology.


In September, the S&P Bombay Stock Exchange 100 Index returned 5.21% in U.S. dollar terms (3.97% in local currency terms).

Indian equities posted strong returns in September. Indian policymakers surprised markets by announcing a series of stimulative policies. The prior-announced surcharge on capital gains (both domestic and foreign) was reversed, new capital injections into public sector banks were announced and tweaks to tax depreciation rules and expedited Goods and Services Tax refunds were implemented. Policy moves accompanied the fourth-consecutive rate cut year to date. The Indian government announced a significant cut in corporate tax rates from an effective rate of 34% to roughly 25% with additional cuts for manufacturing companies. Although the hit to fiscal revenues is estimated to be approximately 0.7% of GDP, corporate tax cuts are estimated to boost broad corporate earnings higher by 6-7%. Overall, market participants have interpreted government actions to be supportive and broadly positive and Indian equities were some of the strongest regional performers late in September.


In September, the Tokyo Stock Price Index returned 5.92% in local currency terms (4.17% in U.S. dollar terms). The yen ended the month at 108.08 against the U.S. dollar.

Japanese equities were a bright spot within the region in September and the third quarter as the Japanese yen benefited from its “flight to quality” status amid overall high levels of uncertainty. Japanese value stocks rallied fiercely in early September, outperforming growth as U.S. rates spiked higher. Value-oriented names, especially financials, moved higher and growth-oriented, higher P/E stocked lagged. The Japanese economy continues to move sideways and inflation still falls short of the Bank of Japan's 2% target, which has 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.

South Korea

In September, the Korea Composite Stock Price Index (KOSPI) returned 5.77% in U.S. dollar terms (4.84% in local currency terms). The Korean won rose by 1.26% against the U.S. dollar.

South Korean equities were some the strongest performers in the region in September after a fairly weak July and August. South Korean equities have suffered year to date as investors fear the broad reach of the U.S.—China trade dispute onto South Korean companies. South Korean corporate earnings have been lackluster but equity-yield green shoots are starting to appear as dividend payouts are steadily rising, albeit from a very low base.

Southeast Asia

During September, the broader MSCI ASEAN Index returned -0.73% in U.S. dollar terms.

In September, Indonesia's JCI Index returned -2.55% (-2.52% in local currency terms) as domestic growth showed more signs of losing momentum. Retail sales and consumer imports remained weak and consumer sentiment was subdued. Inflation at 3.4% has remained low and stable at the midpoint of Bank Indonesia's (BI) target range, giving space for the central bank to cut policy rates by 25 basis points to 5.25%, bringing the cumulative total of rate cuts to 75 basis points since July. The cut came as a “pre-emptive measure” to support domestic growth amid the uncertain external environment. Positive relief for corporations and Indonesia's balance of payments came in September in the form of new plans for tax cuts. Finance Minister Sri Mulyani announced plans for changes to the tax regime, including a reduction in the corporate tax rate to 20% from 25% on a graduated basis starting in 2021 and withholding taxes on dividends to be removed if dividends are reinvested in Indonesia.
In September, the Philippines PSEi Index returned -1.84% (and -2.50% in local currency terms). The Philippines central bank, BSP, cut its policy rate by 25 basis points, the third rate cut this year, bringing the rate down to 4%. The cut was prompted by inflation falling below the BSP's target band of 2% to 4% as a result of subdued domestic demand factors and high base effects—inflation in September 2018 was 6.7%. Domestic demand is set to receive a boost led by government spending. Post the midterm elections, several reform bills on tax reform and investment are nearing completion. Among other measures, the bills propose to reduce corporate taxes over 10 years, cut taxes on financial intermediaries and products, and ease employment regulations for foreign investors. The CITIRA bill, however, also rationalizes tax incentives available to the IT and business process outsourcing sector, raising the possibility that incremental growth in the sector will slow.
In September, Malaysia's KLCI Index returned -0.37% (and -1.04% in local currency terms). Recent economic data points were mixed with manufacturing and export readings showing resiliency and domestic activity indicators pointing to lackluster growth. PMI has remained steady year to date and manufacturing IP continued to expand around 4% year-on-year. Credit growth and payroll data continued to lose positive momentum. During the month, impacts of the Saudi Arabian oil shock gave Malaysian equities a temporary boost. Malaysia is the only net oil- and gas-exporting country in the region. As growth appears tilted to the downside, the market will likely look to the 2020 budget for greater fiscal support. A budget announcement is set for Oct. 11, 2019.
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.