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Matthews Asia Country Updates

For the month ending May 2015

China/Hong Kong 

In May, the MSCI China Index returned -3.69%. Hong Kong's Hang Seng Index returned -2.17% (-2.19% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned 2.09% (2.22% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the month at 6.20 against the U.S. dollar.

China saw modest improvement in its macroeconomic data in April. The country registered industrial production growth of 5.9% over the month, up from the 5.6% growth seen in March. China’s fixed asset investment growth (FAI) in April was weaker than expected and came in at 9.4%, and lower than the 13.2% it saw in March. China’s FAI weakness is largely due to a drop in property investment which fell to 0.5% in April from 6.5% in March.

Credit growth in April was particularly weak. Growth of M2—a broad classification of monetary supply—reached 10.1% in April versus 11.6% in March and falling to a historical low level in 1Q15 since records began in 1998. Total social financing for China reached RMB 1.05 trillion (US$160 billion) in April, compared with RMB 1.18 trillion (US$190 billion) in March and RMB 1.35 trillion (US$218 billion) in February.

The property market in China is showing signs of a recovery after contracting for 15 consecutive months. Home sales turned positive in April and rose 7.1%, a sharp increase from the -1.6% dip in growth seen in March. With mortgage rates declining from 7% to 6% at present, the property market looks poised to do better.

China cut interest rates by 25 basis points (0.25%) in May, the third time since November 2014. The China’s central bank had also relaxed the banks’ reserve requirements two times in the past six months. Overall, the still-weak economy suggests that the government is likely to maintain monetary easing policies.


In May, India’s markets stabilized perhaps on expectations that the Reserve Bank of India (RBI) would lower interest rates. The Bombay Stock Exchange 100 Index returned 1.28% in U.S. dollar terms (2.15% in local currency), led by gains in the financial sector.

During the month, data released on the index of industrial production (IIP) and consumer price index (CPI) highlighted slowing demand. IIP growth declined month-on-month from 5.0% reported in April to 2.1% reported in May 2015. The CPI declined month-on-month from 5.17% in April 2015 to 4.87% in May. Weaker demand across the Indian economy led expectations that interest rates would be lowered during the next policy meeting in early June.

In May, many Indian corporates began reporting earnings for the quarter ending March 2015. Many corporates missed market expectations and provided a somber commentary on demand expectations for the impending fiscal year 2016. According to corporate feedback, the central government is doing a good job of maintaining fiscal discipline, but in the interim, it is having negative impact on demand for goods and services created by government-led investments.

Earlier this year, the issue of a Minimum Alternative Tax (MAT) plan created concern amongst Foreign Institutional Investors. In May, the government began backing down from its earlier aggressive lobbying for the enforcement of MAT, and is looking further into the proposal.


In May, the Tokyo Stock Price Index increased by 5.08% (1.3% in U.S. dollar terms). Utilities, financials and materials outperformed the market while health care, telecommunications and consumer staples were the biggest laggards during the month. The yen weakened against the U.S. dollar by 4%.

Macroeconomic data was largely positive during the month as the seasonally adjusted unemployment rate hit an 18-year low of 3.3%. First quarter GDP growth also exceeded expectations while export growth positively surprised despite a slowdown in demand in Asia from the previous month. While the trade surplus in March turned back to a deficit in April, the 53.4 billion yen (US$440 million) shortfall was better than expected and drastically improved from the prior year due to the lower cost of fuel imports.

Inflation figures were also marginally ahead of expectations for April with the consumer price index, excluding fresh food and energy, rising by 0.4% on an annual basis. This remains below the Bank of Japan’s medium-term target of 2%.


During the month, the Korea Composite Stock Price Index declined -0.58% in local currency terms and -3.79% in U.S. dollar terms. The Korean won depreciated -3.40% against the U.S. dollar.

May saw an estimated trade surplus of US$6.3 billion. Due to lower oil prices and a slowdown in international trades, both imports and exports have continued to decline each month this year. In addition, Korea saw low petrochemical production due to regular maintenance that occurred during the month, and this negatively affected export volume. To address concerns over declining exports, the Korean government has planned short-term measures, such as supporting small- or medium-sized enterprises in expanding into the China market, easing terms of trade finance and arranging marketing events for export industries. Meanwhile, by region, Vietnam surpassed Japan as the fourth-largest export destination for Korea after China, the U.S. and Hong Kong. Korean smartphone and home appliance makers have also increasingly been moving their manufacturing bases to Vietnam.

During the month, the Bank of Korea held its policy rate steady at 1.75%. Korea’s consumer price index for May increased 0.5%. Core inflation, excluding the effects from energy and food products, stood at 2.2%.

Southeast Asia 

In May, the MSCI South East Asia Index returned -3.67% in U.S. dollar terms. Notably, the Jakarta Stock Exchange Composite Index (JCI) advanced 2.55% in local currency terms (0.17% in U.S. dollar terms). The FTSE Bursa Malaysia KLCI Index declined -3.89% in local currency terms (-6.01% in U.S. dollar terms).

Fiscal concerns over the failure of debt-ridden and controversial investment company 1MDB continued to weigh on the stock market and the Malaysian Ringgit. 1MDB was set up and wholly owned by the Malaysian government to fund long-term development projects in Malaysia. Analysts are concerned about the opacity of the assets and the MYR 42 billion (US$ 11.4 billion) in debt held by the company. By the end of the month 1MDB was able to secure US$1 billion in funding from two Abu Dhabi entities to repay some short-term loans.

In Indonesia, Bank Indonesia (BI) maintained all key interest rates, but announced that it will revise macroprudential measures to boost growth. The central bank indicated that it will review the loan-to-deposit (LDR) requirement as well as the loan-to-value (LTV) rule for property and down payments on automotive purchases. Policy orientation has shifted more to growth as lending growth for March and February slowed from the central bank’s 2015 target range of 15% to 17%.

May 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.