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Matthews Asia Country Updates

For the month ending November 2014

China/Hong Kong

In November, the MSCI China Index returned 1.57%. Hong Kong's Hang Seng Index returned 0.05% (0.05% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned 11.99% (11.48% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.15 against the U.S. dollar, compared to 6.11 at the end of September.

Economic indicators released for the month of October fell short of expectations: Headline fixed asset investment growth was 15.9% versus 16.1% in September. Industrial production growth also slowed to 7.7% from 8% in September. Retail sales growth was largely flat at 11.5%. For November, the official National Bureau of Statistics manufacturing Purchasing Managers Index came in below consensus and fell to 50.3 from 50.8, marking its lowest reading since March.

Given weaker macroeconomic readings, the Chinese government announced its first interest rate cut in more than two years on November 21. Benchmark lending rates were cut by 40 basis points to 5.6%, and deposit rates were cut by 25 basis points (0.25%) to 2.75%. These rate cuts should help loosen credit and liquidity conditions in China and are viewed as positive for further boosting economic growth. In particular, the property market should stand to benefit as mortgage rates have lowered. Going forward, there are market expectations that additional policies will be implemented in China to improve liquidity and monetary conditions.

In mid-November, we also saw the launch of the much-anticipated Shanghai-Hong Kong Connect pilot program. Under this scheme, participants of either the Shanghai or Hong Kong exchanges can gain better accessibility for mutual trading. For foreign investors who have long-needed to rely on the qualified foreign institutional investor (QFII) program to access the largely closed domestic Chinese market, the connect program offers the ability to buy more than 560 Shanghai exchange-traded stocks. Overall, this program is viewed to be positive for the continued development of the domestic Chinese markets and a significant step toward the gradual opening up of Chinese financial markets.


In November, the Bombay Stock Exchange 100 Index grew slightly amid rising foreign inflows and mixed macroeconomic indicators. The Index rose 3.12% in local currency terms (1.70% in U.S. dollar terms). Foreign Institutional Investments (FII) Inflows into equities accelerated to US$2.23 billion in November, whereas the previous month saw marginal outflows. Declining oil prices have temporarily masked many macroeconomic problems. For example, the government was able to deregulate diesel pricing without attracting any political backlash. In addition, the external account deficit is also expected to remain within manageable limits. Inflation in India has already moderated to 5.52%, well ahead of the target set by the central bank. However, economic growth slowed to 5.3% for the quarter ending September, compared to 5.7% for June-ending quarter. Slowing growth and moderating inflation could persuade the central bank to change its stance on tight monetary policy over the coming months.

All eyes are set on the current winter Parliament session, with hopes that many reforms may be pushed through. The government is considering legislating on nearly 40 bills, and has already passed about five bills (including labor laws) in the Lower House and three bills in Upper House in four sessions thus far. This progress has come despite the fact that the ruling party lacks a majority in the Upper House. The government is trying to address some concerns of opposition by amending some bills or incorporating more debate before voting. The main opposition party, Congress, is walking out in certain cases, while it has been supportive in others. The Congress has also not been able to join forces with other opposition parties effectively, which has helped the current government in its reform efforts.


In November, the Tokyo Stock Price Index increased 5.75% (-0.10% in U.S. dollar terms). Materials, consumer discretionary and information technology stocks were the main outperformers while energy, telecommunications and health care were the largest underperformers. The yen weakened by 5.62% during the period.

During the month, the domestic economy moved into a technical recession as third quarter output unexpectedly contracted by an annualized rate of 1.6%. This followed a 7.3% annualized drop during the second quarter of the year when the consumption tax rate was increased.

Other figures announced during the month showed that the consumer price index, including fresh food and energy, rose by 2.2% in October—still comfortably below the Bank of Japan’s long-term target of 2% when adjusted for the April sales tax increase.

This worsening macroeconomic data was likely a factor in Prime Minster Shinzo Abe’s decision to postpone the second consumption tax hike, initially scheduled for October 2015, by 18 months and to call a snap election as he seeks a mandate to continue his aggressive economic plans. The mid-December election comes only two years into his four-year term in office.


During the month, the Korea Composite Stock Price Index advanced 0.83% in local currency terms but declined -2.72% in U.S. dollar terms, as the Korean won depreciated 3.67% against the U.S. dollar.

Exports remained robust in November, leading to an estimated trade surplus of US$5.6 billion. Daily exports have continued to grow, backed by global demand for such items as semiconductors, steel plates and machinery. Exports to the U.S. grew by over 20%, compared to the same month last year, suggesting strong demand for the approaching holiday season. Total imports were down due to declining crude oil prices, but imports of capital goods and consumables grew, relieving some concerns over a "recessionary trade surplus" brought on by fears over weak consumer demand.

The Bank of Korea held its policy rate steady at 2.0% for November and the consumer price index for the month stabilized to 1.0% from the previous month's 1.2%.

Southeast Asia

In November, the MSCI South East Asia Index declined -0.40 % in U.S. dollar terms. Notably, Malaysia’s FTSE Bursa Malaysia KLCI Index (FTSE/BM KLCI) declined -1.85 % in local currency terms (-4.38% in U.S. dollar terms). Indonesia’s Jakarta Stock Exchange Composite Index advanced 1.19 % in local currency terms (0.09% in U.S. dollar terms).

Malaysian Prime Minister Najib Razak took a step backwards in his policy of moderation by reiterating the importance of the Sedition Act at this year’s ruling party United Malays National Organization (UMNO) annual general meeting. The Sedition Act is an all-encompassing law that prosecutes anyone viewed as threatening the state or religious groups. The government has been accused of using this act as an excuse to jail political opponents.

In Indonesia, President Joko Widodo announced that subsidized gasoline and diesel prices will be hiked by 31%, to RP8,500 (US$0.69) per liter and 36% to RP7,500 (US$0.61) liter, respectively. In response, Bank Indonesia raised its policy rate by 25 basis points (0.25%) to 7.75% during an unscheduled meeting—its first hike since November of 2013. The lending facility rate was raised 50 basis points (0.50%), to 8%, while the deposit facility rate was maintained at 5.75%. Investors reacted positively to the fuel price news, viewing this as the first of many reform policies by the Joko Widodo government. Foreigners were net buyers following three consecutive months of selling, with inflows of US$400 million in November.

November 2014

The views and information discussed in this article are as of the date of publication, are subject to change and may not reflect the writer's 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 investments vehicles.