Matthews Asia Country Updates

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For the month ending November 2018

China/Hong Kong

In November, the MSCI China Index returned 7.14% and Hong Kong's Hang Seng Index returned 6.23%, both in local currency terms. China's domestic CSI300, the A share index, returned 0.61% in local currency terms (0.85% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.96 against the U.S. dollar.

Chinese equities posted good results in November. During the month, investors focused and speculated on the G-20 meetings and the prospect that President Trump and President Xi would come to some sort of resolution on trade. The meeting result was positive, although lacking a concrete agreement on trade. The markets, however, interpreted that the change in tone and direction, favoring engagement over confrontation, was a positive sign. The verbal agreements as announced were broadly as follows: for the next 90 days beginning on December 1, the United States would leave tariffs on US$200 billion of Chinese imports unchanged at 10%. In exchange, China expressed willingness to boost its purchases of agricultural, energy and industrial products. In addition, China agreed to make structural changes to better protect intellectual property rights and to lower non-tariff barriers for foreigners to do business in China. At this point, market participants are in a wait-and-see mode for the next 90 days and sentiment will be subject to headlines. For more on China, please read the latest issue of Sinology.


In November, the S&P Bombay Stock Exchange 100 Index returned 10.86% in U.S. dollar terms (4.39% in local currency terms).

Indian equities had a strong November, outperforming most regional and emerging markets. The majority of its U.S. dollar returns were due to a strong bounce back in the Indian rupee and a dramatic softening of oil prices—one of India’s largest imports. Indian small-cap stocks finally posted stronger returns than large-cap stocks in November, even though small caps are still lagging their larger counterparts by almost 30% year to date. Overall, sentiment and macro indicators seem to be stabilizing within foreign inflows turning positive, oil prices more in-line with budget forecasts and the Indian rupee supporting lower inflationary pressures.


In November, the Tokyo Stock Price Index returned 1.30% in local currency terms (0.77% in U.S. dollar terms). The yen ended the month at 113.57 against the U.S. dollar.

Japanese equities were slightly positive in November but underperformed the rest of the region. The good news is that downside price momentum has slowed significantly and other recent market anomalies have begun to correct. For example, Japanese small-cap stocks, which had been weak relative to their larger counterparts this year, bounced in November. In addition, growth stocks, also weak in 2018, finally recovered versus value stocks during the month. Earnings momentum has slowed slightly at the margin in U.S. dollar terms and the Japanese yen weakened slightly in November.

South Korea

In November, the Korea Composite Stock Price Index (KOSPI) returned 5.27% in U.S. dollar terms (3.31% in local currency terms). The Korean won rose by 1.70% against the U.S. dollar.

South Korean equities posted positive returns but lagged broader emerging markets during November. Trade exports stabilized in the typical ranges and the Korean won oscillated, ending fairly flat for the month. Trade negotiations between the U.S. and China should also support Korean exports if a favorable resolution is achieved. Lower oil prices also support South Korea’s current account and currency such that South Korea’s external position should remain stable. Any uptick in China’s economy should also underpin South Korea’s economy and outlook.

Southeast Asia

In November, the broader MSCI ASEAN Index returned 3.24% as falling oil prices helped turn around sentiment, particularly in current account deficit countries.

The Philippines PSEi index returned 5.17% for the month (3.33% in local currency terms). Sentiment remains positive in the Philippines. Inflation has likely peaked as supply side-driven pressures abate. Recent measures to liberalize rice imports should ease supply constraints as well as prices. Meanwhile a rice tariffication bill (to replace import quotas with tariffs) is expected to be passed by the end of this year, providing a more permanent solution. The current account deficit, on the other hand, is likely to persist with strong growth dynamics as the government continues to push public investment spending. In the year to September 2018, public investment spending rose 50% year-over-year despite a lack of many large-scale projects. Foreign direct investment (FDI) from China should see some boost following Xi’s visit to the Philippines and newly signed memorandums of understanding (MOUs), including a joint oil and gas pipeline project and US$2 billion for an industrial park. Until now, Chinese investment into the Philippines has been minimal. An upcoming second-round tax package (TRAIN 2), which raises risks to FDI, and employment as foreign investment incentives are rationalized, looks likely to be stalled until after midterm elections in mid-2019.

During the month, Indonesia’s JCI Index jumped 11.42% (4.82% in local currency terms) as currency concerns abated with the oil price retracement (which is positive for Indonesia) and less hawkish commentary from the U.S. Federal Reserve. Latest market moves should provide some relief for corporations with underlying margin pressure from higher interest rates and currency depreciation from earlier this year. During the month, Bank Indonesia raised rates by a further 25 basis points (0.25%), taking the cumulative rise this year to 175 basis points, expressing caution over a widening current account deficit. While the lower oil price will likely lead to a moderation in the trade deficit in the next few months, the lack of impact of other measures taken so far to slow imports likely led to the decision to hike. It is also worth mentioning that Indonesia has been benefiting as tourism inflows have been rising on the back of the cheap rupiah.

In Thailand, the SET Index fell -1.40% (-1.88% in local currency terms). GDP growth for the third quarter of 2018 slowed due to external growth that remained flat. On the domestic front, conditions improved moderately, although the main growth contribution came from higher inventories, mainly in tech products, possibly ahead of the usual increase in year-end shipments. Despite weaker headline growth, the likelihood of a rise in policy interest rates in December remains high as the Monetary Policy Committee cohort in favor of a rate hike has grown recently. Tourism’s contribution to the economy moderated as Chinese visitor growth averaged -12% over the past four months, but advanced bookings in October (the start of the high season) rose 9% year over year, suggesting that the tide may be turning.

Sources: Bloomberg and 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.