Matthews Asia Country Updates

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For the month ending December 2019

China/Hong Kong

In December, the MSCI China Index returned 7.84% and Hong Kong's Hang Seng Index returned 7.02%, both in local currency terms. China's domestic CSI300, the A-share index, returned 7.01% in local currency terms (8.07% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.96 against the U.S. dollar.

Chinese equities were some of the region's strongest performers in December. Protests in Hong Kong continued but at a lesser intensity and trade negotiations narrowed to focus on specific, more achievable objectives—the result of which was a “phase one” agreement of terms. Markets began pricing in a positive trade outcome early in December. This ultimately resulted in a strong rally in China, broader emerging markets (EM) and across major developed markets. Going into 2020, the U.S. is expected to sign phase one of the trade agreement sometime in mid-January. Chinese corporate earnings are expected to lead Asia and EM with growth in the mid-teens. Government policy should remain supportive, although not outright stimulative, in an effort to maintain steady growth, improve household income and continue economic rebalancing in favor of domestic consumption and services.

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


In December, the S&P Bombay Stock Exchange 100 Index returned 1.55% in U.S. dollar terms (0.78% in local currency terms).

Indian equities were positive in December but notably underperformed broader emerging markets and the Asia region. Indian equities were volatile during the month as India's central bank surprised market participants by leaving policy rates on hold (most analysts expected a cut of 25 basis points). In addition, oil prices spiked higher (generally perceived as negative for India's current account) and official growth expectations for fiscal year 2020 were reduced by the government. Going into 2020, aggregate policy actions taken in September, along with expected fiscal slippage, should stabilize economic growth and earnings from a relatively low base. This should provide equities with a more-favorable backdrop than experienced in 2019. One risk to the more-favorable backdrop is that non-bank financial lending could be slow to rebound, which may squeeze credit availability to small businesses, an important sector of the economy.


In December, the Tokyo Stock Price Index returned 1.44% in local currency terms (1.91% in U.S. dollar terms). The yen ended the month at 108.61 against the U.S. dollar.

Japanese equities posted strong year-to-date returns and were positive in December, but lagged other major countries in the region. Late in the month, Japan benefited from de-escalating trade tensions and a mildly weaker Japanese yen. Interestingly, Japanese growth stocks closely matched the returns of value stocks during the month and large caps slightly outperformed small-cap returns. Going into 2020, investors are pricing in benefits of a “phase one” U.S.—China trade agreement, including global economic green shoots and a rebound in corporate earnings. If global manufacturing PMI continues to hold within expansion territory, history suggests that Japanese stock valuations can re-rate higher than today's levels. Positive re-rating combined with consensus 2020 earnings and the current level of stock buybacks could provide a reasonably constructive backdrop for Japanese equities. Risks to the outlook include a scenario whereby the global and Japanese economies continue to move sideways and inflation still falls well short of the Bank of Japan's 2% target, which could reinforce the need for stimulative policies in the form of lower rates (potentially negative), increased fiscal spending or a rise in ETF purchases.

South Korea

In December, the Korea Composite Stock Price Index (KOSPI) returned 7.43% in U.S. dollar terms (5.28% in local currency terms). The Korean won rose by 2.18% against the U.S. dollar.

South Korean equities were the region's strongest performers in December, highlighting the market's perception that South Korea will benefit from the U.S.–China trade resolution and the subsequent potential boost to the global economy. Two primary drivers could provide South Korea with a tailwind going into 2020. First, South Korea should benefit from the expected rise in DRAM prices and overall cyclical reflation if EM and Asia GDP growth stabilizes as the market expects. Secondly, South Korea's corporate earnings were some of Asia's worst performers in 2019, which makes valuations relatively attractive and the prospect of earnings growth from a low base a good possibility.

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.