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Matthews Asia Country Updates

For the month ending October 2014

China/ Hong Kong

In October, the MSCI China Index returned 4.31%. Hong Kong's Hang Seng Index returned 4.83% (4.96% in U.S. dollar terms) and China's domestic CSI300, the A share index returned 2.34% (2.74% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.11 against the U.S. dollar, up from 6.17 at the end of September.

During the month, China’s purchasing managers index (PMI) reading decreased to 50.8 from 51.1 from last month while the HSBC flash PMI reading increased to 50.4 from 50.2 from September. The reading is above 50, the threshold for manufacturing expansion (a reading below 50 indicates a contraction). 

Data for industrial production in October pointed to a recovery in China’s macroeconomic situation. Industrial production growth increased to 8.0% from 6.9% in August. Fixed asset investment grew 16.1% in September versus 16.5% in August and retail sales growth further moderated to 11.6% in September from 11.9% in August. 

Inflation in China is well under control. The consumer price index stayed at 1.6% in September. In September, new bank loans increased to about US$140 billion.

Due to a relaxation on mortgage policies, property transaction volumes began to pick up in October but high inventory levels have kept prices in check. During the fourth plenum of the 18th Party Congress in Beijing, the government vowed to govern the country under the rule of law, which aims to keep government powers in check. 


In October, the Bombay Stock Exchange 100 Index was up 4.67% in local currency terms (5.53% in n U.S. dollar terms) on the back of improving macroeconomic data and positive sentiment over investment reforms. Falling commodity and crude oil prices have also helped India’s external account deficit and inflation. For example, the current account deficit for the June quarter stood at about 1.7% of GDP, compared to 4.8% for the same quarter last year. Inflation has also moderated to a three-year low at 6.46% for September, helped by a pickup in rainfall, a stable currency and falling commodity prices. Industrial growth data has yielded mixed signals, however. While the commercial vehicle industry has shown double-digit growth by volume, the most recently reported industrial growth data in August moderated to a five-month low of 0.4%. India’s fiscal deficit has also been running higher than the target set by its current government. 

The corporate earnings results declared so far paint a mixed picture. For example, cement and commercial vehicle sales have demonstrated a pickup in growth, whereas public sector banks continue to bleed amid high credit costs. Sustained volume growth among consumer and pharmaceutical companies also appears to be ongoing.
Meanwhile, the sentiment on reforms was generally positive in October. The government has taken some concrete measures, such as deregulating hitherto-controlled diesel prices, opening up the coal sector to private players, raising regulated gas prices that could propel more investments in gas exploration and has taken some early steps to initiate labor reforms. In addition, the ruling party at the federal level has also clinched elections in two states, raising the probability that more reforms could be implemented in cases in which the approval of state governments is required. 


In October, the Tokyo Stock Price Index increased by 0.56% (-1.67% in U.S. dollar terms) to its highest level since 2008. The telecommunications, utilities and consumer staple sectors outperformed while energy, consumer discretionary and industrial stocks were the main underperformers. The yen weakened by 2.44% during the period.

News flow was dominated by the surprise decision from the Bank of Japan to increase its monetary easing program from 60 trillion yen to 80 trillion yen (about US$720 billion). This move will include a focus on longer-term debt of up to 10 years alongside a tripling in purchases of exchange-traded funds and real estate investment trusts.

In another boost for equity markets the Government Pension Investment Fund simultaneously announced its intention to double its holding of domestic stocks to 25% at the expense of government bonds as it reassessed its asset allocation targets. 

The consumer price index, excluding fresh food and energy, rose by 2.3% in September. This was comparable to the figures from the previous month but remains below the Bank of Japan’s long-term target of 2% when adjusted for the impact of the April sales tax hike.


During the month, the Korea Composite Stock Price Index declined -2.76% in local currency terms and -4.21% in U.S. dollar terms, as the Korean won depreciated 1.44% against the U.S. dollar.
During the month, the Bank of Korea lowered its policy rate again from 2.25% to 2.00%, after dropping the rate two months prior. The country’s central bank governor emphasized the need to stimulate the economy, and offered three factors to the bank’s rate cut move: a downgraded economic growth prospect, prolonged negative GDP gap status (which means it has failed to achieve its economic growth potential) and slowing inflation implying sluggish sentiment. The consumer price index for the month was 1.2%, slightly up from the previous month. 
Exports grew in October from a year earlier, resulting in a trade surplus of a record US$7.5 billion, continuing to be in the black for 33 consecutive months. The country saw an upswing in exports of ships, semiconductors and steel while declining imports of crude oil followed recent oil price weakness. Trade in automobiles was weak following labor strikes and exports of mobile devices suffered from heightened global competition. By destination, exports to the U.S. grew the most as its economic outlook improves and the holiday season approaches. 

Southeast Asia

In October, the MSCI South East Asia Index declined -0.38% in U.S. dollar terms. Notably, Malaysia’s FTSE Bursa Malaysia KLCI Index (FTSE/BM KLCI) advanced 0.71% in local currency terms (-0.15% in U.S. dollar terms). Indonesia’s Jakarta Stock Exchange Composite Index declined -0.80% in local currency terms (0.02% in U.S. dollar terms). 

Malaysia’s economy continues to be strong. Industrial production gained 6.5% in August from a year ago, up from a 0.6% year-over-year increase in July. This contributed to strength in exports, which rose 1.7% in August from a year ago. Along with strong growth, inflation remains benign, easing to 2.6% year-over-year in September due to a higher base effect from last September’s subsidized fuel price hikes. This marked the first time this year that Malaysia’s inflation has slipped below 3.0%. 

Indonesia’s new President Jokowi unveiled his cabinet team of 34 ministers, with 20 cabinet posts going to technocrats and only 14 to politicians. With the new government now in place, fuel subsidies are expected to be cut. Many investors have come to expect a fuel price hike of IDR 3,000/liter (approximately US$0.25/liter), but with the recent fall in oil prices, the gap between the market price and Indonesia’s fuel price has narrowed to IDR 2,500/liter. This may result in a smaller than expected price hike, but with uncertainty over how big the resulting increase in inflation might be, the fall in global oil prices might be a blessing in disguise.

October 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.