Matthews Asia Country Updates

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For the month ending October 2019

China/Hong Kong

In October, the MSCI China Index returned 4.12% and Hong Kong's Hang Seng Index returned 3.51%, both in local currency terms. China's domestic CSI300, the A-share index, returned 1.70% in local currency terms (3.29% in U.S. dollar terms). The renminbi (RMB), ended the month at 7.04 against the U.S. dollar.

Chinese equities moved higher after a flat September as positive sentiment surrounding trade was a catalyst for bargain-hunting. Current index level valuations hovered around long-term averages but were well below pre-tariff levels. Some investors interpreted this as a reasonable entry point. The severity of protests in Hong Kong waned and investor attention was back on trade, the economy and company fundamentals. Corporate earnings were still being downgraded at the margin but also were stabilizing at lower levels of high single-digit growth for 2019. Some market participants still referenced a continued economic slowdown but most participants also acknowledged that signs of economic weakness increased the likelihood of Chinese monetary and fiscal easing. In fact, we believe Chinese policymakers stand ready to stimulate activity—aggressively if needed—which would limit economic weakness and help support corporate earnings.

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


In October, the S&P Bombay Stock Exchange 100 Index returned 2.45% in U.S. dollar terms (3.03% in local currency terms).

Indian equities posted strong returns in October, matching the strength of broader Asian and emerging market indices. Sentiment was boosted by better-than-expected corporate results and hopes that the Indian government would continue stimulative policies inclusive of equity market-friendly regulations, which could lower capital gains taxes as well as taxes on dividends. Macro releases pointed toward lackluster economic activity and predictably India's central bank (Reserve Bank of India) lowered its target interest rate by 25 basis points at its October meeting. Most analysts foresaw a continued bias toward easier monetary policy in the next three to six months. Local bond yields and the Indian rupee were fairly flat during the month and Indian small caps performed equally with large caps. Indian stocks saw reasonably strong local inflows, which helped boost prices.


In October, the Tokyo Stock Price Index returned 4.60% in local currency terms (4.76% in U.S. dollar terms). The yen ended the month at 108.03 against the U.S. dollar.

Japanese equities were a bright spot within the region in October and in the third quarter as the Japanese yen benefited from its “flight to quality” status amid overall high levels of uncertainty. Japanese small-cap stocks performed slightly better than large caps during the month, and value stocks kept pace with growth stocks. Overall, Japanese equities seemed to benefit from de-escalating trade tensions, a stabilizing Chinese economy and relatively robust developed-market stock performance, especially in the U.S.

South Korea

In October, the Korea Composite Stock Price Index (KOSPI) returned 4.64% in U.S. dollar terms (2.12% in local currency terms). The Korean won rose by 2.81% against the U.S. dollar.

South Korean equities were some the strongest in the region in October on the back of a strong September. A broad-based rally in technology-related stocks along with others related to communication services and the consumer drove markets higher. Overall, South Korean equities have lagged the broader Asian benchmarks year to date as investors fear the broad reach of the U.S.—China trade dispute onto Korean companies. Korean corporate earnings have been lackluster but equity yield green shoots started to appear as dividend payouts steadily rose, albeit from a low base.

Southeast Asia

During October, the broader MSCI ASEAN Index returned 2.35% in U.S. dollar terms.

In October, Indonesia's JCI Index recovered from a weak September and returned 1.72% (1.03% in local currency terms), as optimism over the incoming Jokowi Administration helped to boost the economy as domestic growth showed more signs of losing momentum. Monthly indicators such as car and motorcycle sales were weak, while low-end consumption also was held back by a lack of government support. A recent recovery in palm oil prices, which translate to higher rural income, however, could help support basic consumption in the fourth quarter, although the potential for new social spending-related fiscal stimulus will only come in 2020, in our view. The potential for a recovery in investment was seen in high-frequency capital goods import data, suggesting that infrastructure investment could accelerate into 2020.

In October, the Philippines PSEi Index returned 4.52% (and 2.55% in local currency terms). The Philippines central bank, BSP, announced that it will reduce its reserve requirement ratio (RRR) by another 100 basis points, effective in December, bringing it down to 14% by year end. The announcement comes ahead of a scheduled 100 basis point reduction to the RRR effective in November 2019. This amounts to a total of 400 basis points of cuts to the RRR this year, supported by below-target headline inflation and sub-6% economic growth. According to the BSP governor, the announced reduction is aimed at ensuring sufficient money supply to support the economy. BSP kept the policy rate unchanged in October, having already cut its policy rate three times this year, bringing the rate down to 4%.
Philippines' inflation has likely bottomed after slowing for the fifth straight month to 0.8% year-over-year in October 2019, following last year's sharp series of rate hikes and easing food prices. But real interest rates remain attractive, helping to draw inflows and provide scope for more policy-rate cuts in 2020, if needed. The Philippine peso also has benefited from rising real yields, drawing in portfolio flows that helped to buffer against the country's current account deficit. The currency is likely to remain well supported over the next quarter as the Philippines enters the high season for overseas worker (OFW) remittances and the central bank pauses on rate cuts.
In October, Thailand's SET Index returned -0.69% (and -2.00% in local currency terms), as negative news flow hit the local exchange and continued strong performance of the Thai baht against the U.S. dollar helped to buffer returns in foreign currency terms. The negative news flow was due to the U.S. Trade Representative's office suspending some of Thailand's GSP (Generalized System of Preferences) tariff privileges. The suspension covers a total of 573 types of goods, which will now face a tariff of 4.5%. The GSP removal will take effect April 25, 2020. The U.S. Embassy in Bangkok noted that the suspension of GSP privileges is due to lack of action over workers' rights, despite six years of dialogue on the issue. The spokesperson noted that the privileges could be reinstated if Thailand makes progress on the issues highlighted.

How big is the impact? Not very, in our opinion. The GSP suspension covers US$1.3 billion of exports to the U.S., 4.1% of total Thai exports to the U.S. and just 0.5% of total exports (based on 2018 data). It is also worth noting that as a middle-income country, Thailand's eligibility for the GSP program is likely to expire in the not-too-distant future. Relative to GDP, the amount of affected exports is 0.27% of GDP.

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.