Matthews Asia Country Updates

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For the month ending March 2019

China/Hong Kong

In March, the MSCI China Index returned 2.45% and Hong Kong's Hang Seng Index returned 1.59%, both in local currency terms.  China's domestic CSI300, the A share index, returned 5.54% in local currency terms (5.25% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.71 against the U.S. dollar.

Chinese equities posted another strong month as moderate stimulus has helped support the recent softness in economic activity. Although Chinese government stimulus will fall well short of 2009 and even 2015 levels of intervention, modest increases in infrastructure spending and lower reserve requirement ratios and value-added taxes seem to be producing green shoots of economic stability. Late month economic data confirmed a rebound in manufacturing activity as well as a stable service sector. Chinese corporate earnings remain relatively robust and valuations continue to be some of the most attractive for emerging markets, even after the first quarter rally in equity markets. Even though Chinese economic growth is slowing slightly, the government's easing posture should effectively take economic tail risks off the table in the near term while still supporting personal income growth and spending.

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


In March, the S&P Bombay Stock Exchange 100 Index returned 9.92% in U.S. dollar terms (7.58% in local currency terms).

Indian equities were the region's strongest in March after lackluster returns in January and February 2019. Market participants scooped up Indian shares, especially small- and mid-cap stocks, as corporate earnings remained steady and several risks plaguing Indian equities seem to fade. The macro backdrop surrounding Indian equities has begun to improve. First, lower global interest rates led by the U.S., the Eurozone and China work to benefit current account deficit countries like India in the form of lower borrowing costs and relatively stable currencies. Secondly, the Reserve Bank of India  cut rates in February and could continue its easing bias in Q2 as inflation metrics are supportive of lower rates. And lastly, fiscal policy remains accommodative with an expected fiscal deficit of 3.4% of GDP for fiscal year 2020. Valuations have become more reasonable especially with the backdrop of improving return on equity and earnings. There are lingering risks, however, as national elections are due to begin in late April and into May 2019, which may highlight a more complicated political environment even if Prime Minister Narendra Modi retains power. In addition, oil prices are creeping higher, which could become a formidable headwind if price rises repeat their third quarter 2018 runup.


In March, the Tokyo Stock Price Index returned -0.03% in local currency terms (0.47% in U.S. dollar terms). The yen ended the month at 110.86 against the U.S. dollar.

Japanese equities were flat in March after posting reasonably strong results in January and February. Fears of a global slowdown weighed on markets as many investors perceive Japan to be fairly linked to the global cycle and trade. However, growth stocks in Japan marginally outperformed their value oriented counterparts during the month. Japanese stock valuations remain attractive but earnings momentum is still being scrutinized by market participants as profit margins continue to be squeezed by rising fixed costs, including those relating to the higher cost of labor. The new Emperor of Japan will take the throne on May 1, which will become a national holiday. Japan's Golden Week break will be extended to 10 consecutive days from April 27 — May 6. Going into the second quarter, eyes will be on the Upper House elections in July, potential China—U.S. trade talk resolutions and data related to U.S. and Chinese economic stability.

South Korea

In March, the Korea Composite Stock Price Index (KOSPI) returned -3.56% in U.S. dollar terms (-2.49% in local currency terms). The Korean won declined by -0.66% against the U.S. dollar.

South Korean equities were weak in March and lagged broader emerging markets as fears of a slowdown in global growth—especially in terms of global trade—weighed on sentiment. A pause in U.S. rate hikes along with the U.S. Treasury curve inversion in late March and generally weaker export results in South Korea have weighed on equity markets. The Korean won is pushing toward the weaker end of its 12-month range as speculators look toward an offset to weaker exports. Some participants expect the government to release a stimulative supplementary budget to help support economic activity.

Southeast Asia

In March, the broader MSCI ASEAN Index decreased by -0.37%. During the month, Thailand held its first general election in eight years and its Pheu Thai (PT) Party, which is tied to former leader Thaksin Shinawatra, became the country's single-largest political party, unofficially winning 137 seats from 350 constituencies. Thailand's SET index returned -0.80% (-0.22% in local currency terms). Meanwhile, the Phalang Pracharath Party (PPRP), a newly formed party representing the interests of the Thai military junta, finished second with 97 constituency seats. Official results of the election are expected to be announced on May 9, by which time the actual proportional allocation of parliamentary seats should be known. In the interim, while the military junta continues as the caretaker government, both major winning parties in the election, PT and PPRP, are claiming the right to form a government. 

Malaysia's KLCI Index was down -3.38% (-3.01% in local currency terms). Headline inflation came in negative for the second consecutive month, driven by a continued decline in transportation costs, particularly oil. Malaysia's central bank revised down its real GDP forecast for this year to the 4.3% to 4.9% range, down from its 2019 budget forecast of 4.9%. In its annual report the central bank was more dovish and signaled accommodative monetary conditions would be maintained, pointing out that downside risks were greater than upside risks. That said, the domestic economy appears supported by positive labor market developments underpinned by steady expansion in services and manufacturing. Last year, private sector wage growth came in at 6% and employment growth at 2.5%. Furthermore, subsidies, minimum wage increases and cash transfers to low-income households should support private consumption growth this year.

Indonesia's JCI Index returned -0.29% (0.41% in local currency terms). Indonesia's election is set for April 17—the first time that the presidential and legislative elections are to be conducted concurrently. The candidates, however, are a repeat of the 2014 election with Joko Widodo (Jokowi) and Prabowo Subianto vying for the leadership positions once again. Pre-election polls suggest an incumbent victory, which would mean Jokowi winning a second term. Whoever the winning candidate is, he would be inheriting an Indonesia that is running a small primary surplus—government income less spending, excluding interest payments—for the first time since 2011. Indonesia's capital is also seeing signs of infrastructure progress with Jakarta finally getting its own mass rapid transportation (MRT) network after decades of delay. The second phase is expected to be completed around 2024 with more train lines envisioned for the future. 

Sources: Bloomberg, Bank Negara Malaysia annual report 2018, 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.