Matthews Asia Country Updates

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For the month ending December 2018

China/Hong Kong

In December, the MSCI China Index returned -6.01% and Hong Kong's Hang Seng Index returned -2.48%, both in local currency terms.  China's domestic CSI300, the A share index, returned -5.10% in local currency terms (-3.98% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.88 against the U.S. dollar.

China underperformed broad emerging markets in December 2018 with the majority of its relative weakness occurring in the last two weeks of the month. Developed markets in the U.S. and Japan led global equities lower for the month, while emerging and Asian markets were down but generally outperformed their developed market counterparts.
Although expected by many, Chinese economic data was lackluster and showed signs of slower output, especially within the manufacturing sector. Equity buyers seemed happy to remain on the sidelines as major global indices remained volatile. Chinese equities have priced in significant levels of uncertainty, which should underpin prices and mitigate significant downside. In addition, many analysts believe that major economic weakness in China would be met by economic stimulus from the Chinese government, helping to underpin demand and corporate earnings. For more on China, please read the latest issue of Sinology.


In December, the S&P Bombay Stock Exchange 100 Index returned 0.50% in U.S. dollar terms (0.43% in local currency terms).

India's equity market was a strong outperformer in December on the back of a very strong November. Markets shrugged off the resignation of India's central bank (RBI) governor and risks surrounding upcoming state election results. India's currency outperformed others in the region as oil prices continued to fall, easing devaluation pressure on the currency. India's economy has been viewed as a regional bright spot as interest rates seem fairly valued and most economists believe India should be able to delay rate hikes for the time being. One drag to potential growth is that government tax receipts seem to be lagging government forecasts, which could hamper budgetary spending after the April 2019 elections.


In December, the Tokyo Stock Price Index returned -10.27% in local currency terms (-7.65% in U.S. dollar terms). The yen ended the month at 109.69 against the U.S. dollar.

Japanese equity returns were among the weakest in the region in December. Trade tensions along with weaker U.S. economic data exacerbated fears that the U.S., China and the rest of the global economy could slow. Therefore, growth stocks in Japan, especially those of companies that sell into China, were some of the hardest-hit. In addition, quality, smaller cap names came under pressure. December weakness escalated as equities in other developed markets, especially the United States, turned sharply lower.

South Korea

In December, the Korea Composite Stock Price Index (KOSPI) returned -2.16% in U.S. dollar terms (-2.64% in local currency terms). The Korean won rose by 0.88% against the U.S. dollar.

South Korea's equity returns were in line with broader emerging markets in December. The South Korean government announced a 2019 draft budget that included significant increases in social spending focused on social security, health care, education, tourism and job creation. This should mitigate the repercussions of a potential slowdown in the Chinese economy.

Southeast Asia

In December, the broader ASEAN Index returned -0.24%. Thailand's SET Index weakened by -3.47% (-4.62% in local currency terms) as the nation's current account surplus narrowed due to import growth that outpaced export growth. Import growth late in 2018 was strong although skewed by some occasionally large public sector imports of planes, ships and rail systems. Export growth was slower, coming from a high base effect off of last year's surge in exports of mobile phones and slower growth in tourism receipts, predominantly from Chinese visitors. Thailand's domestic demand was slightly more positive with modest improvements on several fronts. Thailand's junta formally lifted a ban on political campaigning ahead of elections in 2019, more than four years after the restriction was imposed following Thailand's latest military coup. This sets the stage for campaigning to begin, although the junta recently backtracked on the previous February 24 election date and has yet to announce a new timeline.

In Indonesia, the JCI Index returned 1.04% (2.37% in local currency terms) during the month as Indonesia's central bank, Bank Indonesia (BI), held policy rates unchanged at 6%. The country's current account deficit is a top concern for the central bank and it has vowed to closely collaborate with the government to enhance external sector resilience. Lower oil prices are likely to ease pressures on the trade balance, and other measures taken to slow imports started to show their effect. BI's latest statement suggested no change in its monetary policy. The central bank is expected, however, to keep the currency's value in check.
In the Philippines, the PSEi Index returned 1.17% during the month (1.39% in local currency terms). Headline inflation slowed to 6% year over year in November 2018, the first time it declined since November 2017, on a broad drop in food and energy costs. Headline inflation should moderate as more favorable base effects kick in, along with the passage of the rice tarrification bill, aimed at improving the rice supply and lowering inflation. During the month, the central bank (BSP) paused on a further hike in interest rates following lower inflation expectations. That said, the BSP governor noted the importance of being mindful of core inflation trends. The tightening cycle may continue into the first half of this year, especially in light of an increase in Manila's minimum wage, new excise tax hikes, still-negative real interest rate differentials and a rise in government infrastructure spending in 2019.

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.