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Matthews Asia Country Updates

For the month ending February 2015

China/Hong Kong

In February, the MSCI China Index returned 3.24%. Hong Kong's Hang Seng Index returned 1.32% (1.29% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned 4.03% (3.75% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the month at 6.27 against the U.S. dollar. 

China celebrated the Lunar New Year holiday in early February, which led fewer macroeconomic statistics to be announced for the month. However figures registered for January continue to demonstrate that macro conditions have yet to improve meaningfully. January’s Purchasing Manager’s Index was not notable, and registered a slight recovery from 49.8 to 49.9. January’s trade data came in slightly lower than expected; and exports declined -3% year-over-year (YoY ) while imports decreased by -20%. Import figures have seen larger declines mainly due to falling commodity prices. 

New loans in January increased to US$234.4 billion (RMB 1,470 billion) from US$111.2 billion (RMB 697 billion) in December. Total social financing came in at US$327.0 billion (RMB 2,050 billion) compared to US$270.3 billion (RMB 1,695 billion) in December. Total social financing in China has seen its growth rates decline during most of 2014 as the government further tightens regulations behind shadow banking activities.

Another statistic of recent key concern is China’s inflation. The country’s January inflation registered a reading of 0.8% and hit a five-year low, sparking concerns of deflation in China. Lower food prices resulted in lower consumer price index numbers for China. Food prices increased 1.1% in January, compared to 2.9% in December, and contributed to about 80% of the decline in January.

Further deflationary worries have centered on China’s producer price index, which dropped -4.3% in January from a year earlier, extending factory deflation to nearly three years. However, part of China’s producer price index declines can be linked to lower oil and commodity prices. 

Given deflation concerns, China’s government lowered interest rates further. Effective March, benchmark interest rate for one-year loans will be reduced by 25 basis points (0.25%) to 5.35% and the benchmark interest rate for one-year deposits has been reduced 25 basis points (0.25%) to 2.5%. This is China’s third attempt to introduce easing measures, subsequent to November’s interest rate cuts and December’s reserve ratio requirement cut. These measures have been largely anticipated by many observers. While China may introduce more easing policies, major stimulus action appears unlikely as China’s central bank still maintains its overall position of a prudent monetary policy.


In February, the stock market remained mostly flat amid decelerating foreign inflows and muted corporate earnings results. The S&P Bombay Stock Exchange 100 Index grew marginally by 1.06% in local currency terms (and 1.72% in U.S. dollar terms). Foreign Institutional Investment inflows reached about US$1.43 billion during February, compared to US$4.31 billion year-to-date. Corporate earnings results did not differ from that of last few quarters in terms of moderating growth, though some companies did show margin expansion amid declining input prices. Toward the end of the month, the central government presented its first full year union budget before parliament. The exercise appeared to help with incremental progress rather than creating structural reforms.

On a positive note, India’s budget did attempt to address issues of taxation. For example, it simplified direct taxes by reducing some exemptions and outlined a plan to reduce the level of taxation over the next few years. On the indirect tax front, the central government has accepted the finance commission’s recommendation to increase the share of states from 32% to 42% of total gross taxation revenues, which appears to be a step toward a full-fledged Goods and Services Taxation. At the same time, the budget has increased the responsibility of states to carry out expenditures, suggesting an increasing centralization of revenues and decentralization of expenditures over time. Another positive element of this budget has been to increase infrastructure spending, especially for roads. This effort could even mean a loosening of some fiscal controls, especially at a time when the government has saved considerably on subsidies due to falling oil prices. 

On the negative side, the budget outlay for food subsidies and employment guarantee programs was expanded significantly. It may perhaps have drawn lessons from the ruling party’s recent defeat, in state elections in Delhi, to a party that made some populist promises. This budgetary move could worsen public finances. However, it could also help revive rural growth, which has decelerated in recent months. 


In February, the Tokyo Stock Price Index increased by 7.71% (5.63% in U.S. dollar terms). Financials, energy and materials sector stocks were the largest outperformers while utilities and telecommunications were the largest underperformers. The yen weakened by 1.75% against the U.S. dollar over the period.

Macroeconomic data released during the month was largely negative. In January, the contraction in household spending was worse than expected while retail sales fell for the first time in seven months, raising concerns over consumer confidence. On a more positive note, industrial output showed some strength rising by an unexpectedly high 4%.

The unemployment rate, having reached a record low of 3.4% in December, increased to 3.6% while the job offers-to-applicants ratio remained flat amidst expectations that it would improve. Both such metrics are monitored as indicators of the health of the labor market and any upward pressure on wages would be well-received in light of the government’s aggressive stimulus program.

Inflation data was once again weak with the consumer price index, excluding fresh food and energy, increasing only 2.1% in January despite the influence of the sales tax hike last April. 


During the month, the Korea Composite Stock Price Index advanced 1.87% in local currency terms and 2.22% in U.S. dollar terms. The Korean won appreciated 0.41% against the U.S. dollar.
February saw an estimated trade surplus of US$7.7 billion. The daily average for exports grew 9.3% compared to the same month the prior year, although the price level of refined oil and petrochemical products has lowered. Offshore vessels and semiconductors led strong overseas sales, offsetting the effects of falling oil prices. As a result, the monthly trade surplus reached a new record high since October 2014. By region, exports to the U.S. continued strengthening as it has since the second quarter of 2014. Exports to other regions declined due to fewer working days during the month due to the lunar new year.
The weak oil price has also impacted consumption. Korea’s consumer price index for February was 0.5%—the lowest in last 16 years. Core inflation, excluding the effects from energy and food products, stood at 2.3%. During the month, the Bank of Korea held its policy rate steady at 2.0%. 

Southeast Asia 

In February, the MSCI South East Asia Index returned 1.43% in U.S. dollar terms. Notably, Indonesia’s Jakarta Stock Exchange Composite Index advanced 3.04% in local currency terms (0.83% in U.S. dollar terms). Singapore’s Straits Times Index advanced 0.37 % in local currency terms (but fell -0.29% in U.S. dollar terms). 

In a surprise move, Indonesia’s Central Bank cut its benchmark rate by 25 basis points (0.25%) to 7.50%. The lower rate was based on a rising conviction that inflation would remain in check at the lower end of the 3 to 5% range over the coming two years. January’s consumer price index experienced deflation of 0.24% (month-on-month) as a result of lower fuel prices and easing inflationary pressures on foods with volatile prices such as rice and cooking oil. 

The Singaporean government presented an expansionary budget for fiscal year 2015, with a projected deficit of 1.7% of GDP vs. a deficit of 0.03% in 2014. Higher social and infrastructure expenditure is expected to be the main reason for rising government spending. Another notable feature of the budget was the rise in personal income tax for the highest income bracket (those earning above US$234,000) from 20% to 22%. 

February 2015

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.