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Matthews Asia Country Updates

For the month ending August 2014

China/Hong Kong

In August, the MSCI China Index marginally increased 0.26%. Hong Kong's Hang Seng Index returned 0.19% (0.19% in U.S. dollar terms) and China's domestic CSI300. The A share index returned -0.39% (0.15% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.14 against the U.S. dollar, up from 6.17 at the end of July.

During the month, China’s purchasing managers index (PMI) readings dropped to 51.1 from 51.7 in July and the HSBC flash PMI reading decreased to 50.2 in August from 51.7 in July, signaling some downward economic pressure. But the reading is still above 50, the threshold for manufacturing expansion (a reading below 50 indicates a contraction).

Data for July also pointed to decreased strength in China’s macroeconomic environment. Industrial production growth dropped to 9.0% from 9.2% in June. Fixed asset investment grew 17% in July versus 17.3% in June and retail sales moderated somewhat at 12.2%.

Inflation in China remained well under control. The consumer price index stayed flat at 2.3%. In July, new bank loans decreased to about US$65 billion, offsetting some of the rapid growth in earlier months.

The Chinese government continued planning initiatives to reform state-owned enterprises (SOEs), and introduced a performance-based compensation structure and a system to allow management a share-based incentive scheme aimed at greatly improving efficiencies among SOEs.   


During August, India’s market rose marginally amid decelerating foreign equity inflows. The S&P Bombay Stock Exchange 100 Index gained 2.94% in local currency terms (3.36% in U.S. dollar terms). Foreign institutional equity inflows were still positive, but slowed to US$0.89 billion in August, compared to US$2.19 billion in July and US$13.05 billion year-to-date.

Meanwhile, the reported macroeconomic data has been a bit mixed and unclear in trend. Inflation inched up to 7.96% in July from 7.46% a month earlier, but still remains below 8%. Not surprisingly, the central bank kept monetary policy largely unchanged. Growth data has also been marked by volatility and uncertainty over the last few months. For example, industrial growth slowed to 3.4% in June from 4.7% the previous month after it had bottomed out to sub-zero levels a few months ago. At the same time, quarterly economic growth inched up to 5.7% for the June quarter, compared to sub-5% growth for the previous two fiscal years.

Some of this revival of growth could be attributed to actions taken by the newly elected federal government, though it has not undertaken any breakthrough reforms, such as those pertaining to land or labor. Anecdotally, India’s bureaucracy has improved somewhat and large infrastructure projects are experiencing faster clearance rates. The government has approved more than US$100 billion (out of over US$350 billion) in projects that had been stalled for various reasons. The subsidy on diesel has also come down to very reasonable levels due to gradual price hikes and moderating global oil prices. The government has also been attempting to cooperate further with more developed neighbors, such as Japan, in order to attract much-needed foreign capital. Meanwhile, the central bank has also been reducing certain restrictions for Indian banks, leaving them with more options to meet capital raising norms.


 In August, the Tokyo Stock Price Index fell by 0.86% (-1.99% in U.S. dollar terms). At the sector level, health care was the largest outperformer with financials, telecommunication services and consumer discretionary stocks being the largest underperformers. The yen weakened by 1.25% during the month.

Macroeconomic data for the month was mixed. After falling sharply in June, industrial production rose by only 0.2% in July, posing a disappointment to consensus expectations. Retail sales, which have been monitored closely following the consumption tax hike in April, were up 0.5% on the previous year.

Japan’s current account swung back to a deficit for the first time in five months amid weak exports in June as the country continues to import fossil fuels during the nuclear power shutdown that commenced following the Fukushima disaster in 2011.

The consumer price index, excluding fresh food and energy, rose 2.3% in July but is still below the Bank of Japan’s long-term target of 2% when adjusted for the impact of the tax hike inflation.  


During the month, the Korea Composite Stock Price Index declined -0.37% in local currency (while rising 1.24% in the U.S. dollar terms). The Korean won appreciated 1.62% against the U.S. dollar.


During the month, the Bank of Korea lowered its policy rate from 2.50% to 2.25%—its lowest level since the Global Financial Crisis. The rate cut was largely expected as financial market participants anticipated the central bank would accommodate the government's expansionary fiscal policy that included a US$40 billion supplementary budget. Despite strong exports that contributed to the current account surplus, Korea's domestic demand has been sluggish due to weaker consumer sentiment partly stemming from the tragic ferry accident in April. The consumer price index for the month slowed to 1.4%, from 1.6% the previous month.


Trade data saw an estimated surplus of US$3.4 billion. While most of the country's key export categories, including electronics, steel, and petrochemical products, have continued on a solid growth path, automobile exports have declined. This has been attributed to some labor woes that impacted production. Over the short term, the government expects exports to be robust, as demand from the U.S. and Europe continues to be strong and the recent decline in exports to China stabilizes. 

Southeast Asia

In August, the MSCI South East Asia Index advanced 0.71 % in U.S. dollar terms. Notably, the Stock Exchange of Thailand Index advanced 3.94% in local currency terms (4.73% in U.S. dollar terms) and Singapore’s Straits Times Index declined -1.39% in local currency terms (-1.57% in U.S. dollar terms). 

Thailand’s economy recovered in the second quarter, expanding by 0.4% and surprising markets as political stability quickly returned. Toward the end of August, Thailand’s ailing king formally endorsed as prime minister the military leader, General Prayuth Chan-ocha, who seized control earlier this year. The approval was a formality following Prayuth’s earlier appointment by the military-majority national assembly, who unanimously voted in the sole candidate. Spurring economic growth has been one of the key objectives of the new military cabinet. Growth in private consumption, private investment and government spending all improved, and the headline consumer price index for August rose 2.1% year-over-year, compared to consensus expectations of a 2.3% rise. The lower-than-expected rise resulted from declining food and energy prices due to favorable weather conditions and a drop in global fuel prices.

 In Singapore, economic growth rose 2.4 % year-over-year in the second quarter, moderating from 4.8% growth during the previous quarter. The government narrowed its GDP growth forecast for 2014 to a range of 2.5% to 3.5% from its previous estimate of 2.0% to 4.0% 2014. Uncertainties in global markets and constraints in labor-intensive domestic segments, such as retail, were some of the factors highlighted. 

 August 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.