Matthews Asia Country Updates

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For the month ending February 2019

China/Hong Kong

In February, the MSCI China Index returned 3.49% and Hong Kong's Hang Seng Index returned 2.71%, both in local currency terms. China's domestic CSI300, the A-share index, returned 14.64% in local currency terms (14.75% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.69 against the U.S. dollar.

Chinese equities (especially small caps) posted some of the strongest results in the region in February as local sentiment improved on hopes of a trade deal between the U.S. and China. Trade tensions eased as both China and the U.S. released positive statements regarding the progress of talks and the increased likeliness of a trade deal. In the near future, continued positive sentiment could hinge on the outcome of the trade deal as the market has already begun to price in a friendly outcome.

In addition, the Chinese government has supported a stimulative credit policy, an accommodative monetary policy and a fiscal policy that includes consumer-friendly tax cuts. Overall, the government's easing posture should help support the Chinese economy—effectively taking economic tail risks off the table in the near term. On the last day of February, MSCI announced it will quadruple the weight of A-shares in its Emerging Markets Index in 2019. The changes will bring the pro forma weight of China A-shares in the MSCI Emerging Markets Index to 3.3% in November 2019 from 0.7% today. This will include lifting the inclusion factor of over 250 large-cap names, adding 27 ChiNext large-cap stocks and 168 mid-cap names.

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


In February, the S&P Bombay Stock Exchange 100 Index returned -0.29% in U.S. dollar terms (-0.47% in local currency terms).

Indian equities had a weak start to the year but posted flat results in February as prices stabilized. Outperformance in the fourth quarter of 2018 has partially reversed thus far in 2019 as the prices of oil—among India's largest imports—have rebounded sharply year to date. In addition, a mixed earnings season combined with an already challenging political environment and revived border skirmishes with Pakistan contributed to rocky market sentiment. Going forward, monetary conditions seem to be turning more favorable as inflation is consistently undershooting expectations and interest rates are comfortably attractive. Relative equity valuations are in line with historical valuations and, barring a significant spike in oil prices or an unfavorable outcome of the national elections scheduled for May, the backdrop for Indian equities seems relatively benign.


In February, the Tokyo Stock Price Index returned 2.60% in local currency terms (0.28% in U.S. dollar terms). The yen ended the month at 111.39 against the U.S. dollar.

Japanese equities were flat in February in U.S. dollar terms after a strong January. Small-cap stocks in Japan managed to outperform their larger-cap counterparts as the excitement over a more dovish U.S. Federal Reserve waned and worries over potentially slowing corporate earnings growth dampened sentiment for larger index names. Going forward, market participants are looking toward the U.S.—China trade talks, the trajectory of corporate earnings growth and the prime minister's ability to rekindle Japan's economy in efforts to keep inflation on target.

South Korea

In February, the Korea Composite Stock Price Index (KOSPI) returned -1.46% in U.S. dollar terms (-0.43% in local currency terms). The Korean won declined by -1.18% against the U.S. dollar.

South Korean equities were marginally lower in February but have rebounded year to date, influenced considerably by the fading of headwinds affecting emerging and Asian markets in 2018. U.S. dollar weakness along with a more benign environment surrounding trade and already-attractive valuations helped underpin Korean stocks. Information technology stocks along with more cyclically oriented names performed well as trade tensions eased in February. Korean corporate earnings have been lackluster thus far but Korean stocks have benefited from overall investor inflows into emerging markets.

Southeast Asia

In February, the broader MSCI ASEAN Index was down -1.44%. The Philippines PSEi Index ended down -4.58% (-3.21% in local currency terms) despite positive net foreign inflows for the month. In February, the government appointed a new budget secretary, which likely signals policy continuity and even perhaps a push for expansionary policies. Headline inflation for February was 3.8%, sharply down from the third quarter of last year, and sets a path for a reduction in bank reserve requirement ratios, which could boost liquidity. Further removing pressures on inflation, the rice tarrification bill was passed into law and removed quotas on rice imports. Rice remains a large component of the consumer basket at about 9%. More broadly, the current account deficit for the Philippines is expected to widen further, exerting downward pressure on the peso, as the pace of infrastructure building picks up. However, lower oil prices and the stream of inflows from the robust business process outsourcing (BPO) industry and remittances are offsetting forces.

Malaysia's KLCI Index was down -1.12% (-0.55% in local currency terms). National economic data released during the month showed GDP growth rising 4.7% year-on-year, driven by private consumption growth. The resilience of private consumption in Malaysia, despite the recent reinstatement of the sales and service tax, held up due to low inflation and solid wage growth. Recent comments from the Malaysian central bank (BNM), however, suggested that external factors posed downside risks because of trade tensions, commodity-related shocks and heightened uncertainties. Trade and credit growth figures indicated softening aggregate demand. The recent inflation reading showed a negative contraction at -0.7%, driven by lower transport fuel costs. The BNM is likely to look past this inflation reading and focus on the growth outlook, given that the reading was affected by lower oil prices and additional fuel subsidies passed through at the start of the year.

Indonesia's JCI Index was down -2.92% (-0.12% in local currency terms). The latest GDP data showed the economy growing by 5.2% year-on-year, despite increases in the policy rate of 1.75%. Private consumption held steady, supported by higher spending in transportation, communication and housing. Indonesia took measures last year to cut import levels in an effort to reduce its current account deficit. A softer export outlook amid the softening global trade environment and downside risks to commodity prices, however, will likely pose a drag on the country's efforts to reduce its current account deficit. Despite an increase of 175 basis points (1.75%) in the policy rate since last May, lack of transmission to lending rates has allowed overall credit growth to recover, supporting domestic demand. Consumption should receive a further boost with election-related cash transfers ahead of the presidential elections in April. 

Sources: Bloomberg, MSCI 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.