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Matthews Asia Country Updates


For the month ending January 2016


China/Hong Kong


In January, the MSCI China Index returned -12.34%. Hong Kong's Hang Seng Index returned -10.18% in local currency terms (-10.57% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned -21.04% in local currency terms (-22.08% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the month at 6.58 against the U.S. dollar. The real effective exchange rate was still up 3.9% year-to-date through the end of last December, and was up by 56% from June 2005, when China began to reform its exchange rate mechanism. 

Last December, new home sales, on a square meter-basis, rose 1.4% year-on-year, after rising 7.8% last November, and compared to a fall of 4.1% in December 2014. Online retail sales of goods rose 32% year-on-year through December. Boosted by a reduction in the purchase tax, passenger car sales rose 18% year-on-year last December.

Manufacturing and construction activity continues to be weak, but the largest part of the economy—consumption and services—remains healthy, and the long-awaited rebalancing of the Chinese economy is well underway. This is necessarily leading to slightly slower growth, but this growth comes on a very big base and should be more sustainable. This rebalancing also creates opportunities for investors to focus on the new growth drivers. Last year, for the first time ever, services and consumption accounted for over half of China’s GDP at 50.5%, up from 41.4% a decade ago—an important milestone in the rebalancing process. 

India

During January, the Indian stock market corrected amid accelerating foreign equity outflows, worsening macroeconomic data, and disappointing earnings results. The BSE100 Index returned -5.48% in local currency terms (-7.76% in U.S. dollar terms), with small- and mid-cap companies correcting more than their larger peers. The rupee depreciated 2.42% during the month, in line with many other Asian currencies. Although India has benefited from declining oil prices, its exports have been adversely affected by the global slowdown and a declining renminbi. Meanwhile, industrial production contracted 3.2% in December—the lowest level in four years.

Inflation has also started inching up, with the consumer price index accelerating to its fastest pace in 15 months to 5.6% in December. Consequently, the central bank paused monetary easing, emphasizing the need for investment reforms to fuel industrial growth. Market segments that declined the most include state-owned banks, capitals goods companies and property players. 

The reported corporate earnings results echo the underlying macroeconomic sentiment. State-owned banks have been plagued by an alarming rise in credit costs and earnings results for capital goods companies have been affected by the industrial slowdown. Agriculture-related companies were also hit by droughts over the past two years. However, export-oriented companies, such as technology services, health care, and consumer companies whose input prices are linked to global commodity prices, seem to be improving.

The government and the central bank are making incremental progress in investment and banking reforms, and hopefully, it can translate into better economic growth and a more robust financial system. 

Japan

In January, the Tokyo Stock Price Index declined -7.44% in local currency terms (-7.7% in U.S. dollar terms). Consumer staples, telecommunication services and utilities were the largest outperformers while information technology, financials and materials were the main underperformers. The yen weakened against the U.S. dollar by 0.77% during the month.

Consumer spending data continued to show weakness, contracting by 4.4% in December while industrial output dropped 1.6% due to slowing demand from China in particular. 

Employment-related data, however, continues to be strong with the job openings-to-applicants ratio rising further to 1.27 and the unemployment rate holding steady at 3.3%. It is hoped that further tightening in the labor market will eventually result in higher wages and ultimately stronger economic growth.

Inflation data remains weak with December’s consumer price index, excluding fresh food and energy, up by only 0.8%. With the Bank of Japan’s medium-term inflation target at 2%, the central bank was prompted to cut its benchmark interest rate below zero in a surprising move aimed at complementing its ongoing, large-scale asset buying program.

Korea

During the month, the Korea Composite Stock Price Index declined -2.51% in local currency terms and -5.30% in U.S. dollar terms. The Korean won depreciated -2.31% against the U.S. dollar.

January trade data reflected the pattern seen throughout the previous year—a large trade surplus driven by sizable import declines that outpaced declining exports. Exports fell 18.5% while imports dropped 20.1%, resulting in a US$5.3 billion trade surplus. Exports by volume declined 5.3% compared to a year ago.

During the month, the Bank of Korea held its policy rate steady at 1.5%, and Monetary Policy Committee members expressed concerns over weakened external demand and its impact on the nation’s manufacturing sector. The committee members also shared concern that weak trade data and weak sentiment over the global economy may hurt the country’s thus far resilient consumption. The consumer sentiment index was somewhat weak, declining from the prior month. 

Southeast Asia

In January, the MSCI South East Asia Index returned -1.96% in U.S. dollar terms. Notably, the FTSE Straits Times (FTSE STI) fell -8.80% in local currency terms (-9.24% in U.S. dollar terms) and the Stock Exchange of Thailand SET Index rose 1.01% in local currency terms (2.15% in U.S. dollar terms). 

Singapore’s economy grew by 2.0% on a year-on-year basis in the fourth quarter of 2015 and 2.10% for all of 2015. The manufacturing sector declined 4.80% year-on-year in 2015 due to weakness in the electronics, transportation engineering and precision engineering sectors. Construction sector grew 1.10% due to public sector works and the services sector grew 3.6% due to continued strength from the wholesale & retail trade and the financial services sectors. The Economic Development Board of Singapore forecasted manufacturing output to remain weak due to weak global demand.

In Thailand, the country’s current account was on course to reach one of the largest annual surpluses on record. This was mainly due to imports falling faster than exports and strong tourism-related services inflows. Its trade balance for 2015 was US$34.6 billion compared to US$24.6 billion in 2014 and US$6.7billon in 2013. Domestic demand also improved in December, driven both by temporary year-end tax incentives for spending and what is hoped would be a more sustained government spending, up 40% year-on-year. 

January 2016



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.