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Matthews Asia Country Updates

For the month ending July 2015

China/Hong Kong

In July, the MSCI China Index returned -10.75%. Hong Kong's Hang Seng Index returned -6.09% (-6.10% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned -14.02% (-14.16% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the month at 6.21 against the U.S. dollar.

China released its second quarter GDP figures in mid-July, which pointed to a somewhat debated estimated growth figure of 7%. Elsewhere, the most recently announced macro statistics for China continue to point to an economy that is stabilizing and one that is continuing to show signs of improvement. This is perhaps an indication that the government’s four bank interest rate cuts since November 2014 are positively impacting its underlying economy. 

In June, industrial production—a key economic measure—posted a slight gain and accelerated to register a growth of 6.8% from growth of 6.1% in May. This is encouraging because it registers the fourth consecutive month of improvement for China’s industrial production since its March 2015 bottom.

Consumption and China’s fixed asset investment (FAI) have been important macro indicators as they were main contributors to China’s rapid GDP growth over the past two decades. FAI growth in Q215 was 10.4%, slowing from first quarter growth of 13.5% and largely owing to declines in property FAI, which only grew 4.6% in June 2015. Property FAI had seen a 14.1% rise in the same period last year. The strength in China’s macro recovery, therefore, will be impacted by the pace at which its property sector can recover. Notably, China’s property sales continue to gain momentum. In June, sales of commercial buildings by floor space grew 10.0% from the3.1% growth seen in May. Property sales bottomed in December 2014 when the sector recorded a drop in growth of 16.3%. 

Export growth was tepid in June. Exports increased 2.8% while imports declined 6.1%—indicators that demand, both internally and externally, remain weak. Retail sales growth for the month of June registered a recovery, marking 10.6% growth compared to 10.1% in May. However, China’s online retail sales increased by 39% year on year. Online retail sales account for roughly 10% of total retail sales of consumer goods and reached a total sales volume of RMB1.38 trillion (or about US$222 billion) in June. 

China’s inflation in June edged up to a pace of 1.4% from May’s 1.2% reading, easing some concerns over an economy that is further deflating. However, given weaker global commodity prices and a volatile stock market that may have dampened consumer sentiment, there appears to be downside pressure for China’s consumer price index in coming months. 


In July, India’s markets were stable as a result of good rainfall from the prior month, which calmed fears of another potential drought. The S&P Bombay Stock Exchange 100 Index returned 1.5% in U.S. dollar terms (2.23% in local currency), led by gains in the financials and information technology sectors.

Earlier in the year, Indian meteorologists had been predicting rainfall at 88% of the average. Rainfall below 90% of the average is considered drought conditions. However, better-than-expected rainfall consequently reduced the risk of higher-than-expected inflation in the country. 

Results and commentary from quarterly management reports for the period ending June 2015 so far seem to suggest that earning expectations for fiscal year 2016 remain high. Many corporates cited a slow pace of reforms and high cost of capital as the primary reason for both dismal sales and profit performance. Asset quality of the banking system seems to have worsened based on sequential comparison with last quarter’s results. Construction activity remained slow as indicated by fairly poor results from many cement companies. Consumer staples companies cited weak demand as a primary reason for low to negative price increases; although many reported good earnings on the back of low commodity prices helping to reduce their product costs.

Positive market returns in July may be attributed, in part, to rising optimism over positive political movements on the Goods and Services Tax Bill and on reforms in the land acquisition process during the current parliamentary session, which began late in July.


In July, the Tokyo Stock Price Index increased by 1.79% (0.26% in U.S. dollar terms). Utilities, consumer staples and health care were the largest outperformers while materials and information technology stocks underperformed. The yen depreciated against the U.S. dollar by 1.14%.

Macroeconomic data was mixed during the month. Household spending, having shown some strength last month for the first time since the sales tax hike in April 2014, fell below market expectations as it contracted by 2% in June. Meanwhile, the sharp increase of 9.5% in exports came in below analyst forecasts.

Labor market data continues to look positive despite a marginal increase in seasonally adjusted unemployment to 3.4%. The job offers-to-applicants ratio, an indicator of potential wage inflation, shows that there are 1.19 jobs for every applicant and remains at its highest level since 1992.

Inflation metrics remain benign despite an increase in the consumer price index, excluding fresh food and energy, to 0.6% from 0.4% from the previous month. This remains shy of the Bank of Japan’s 2% medium-term inflation target.


During the month, the Korea Composite Stock Price Index declined -2.12% in local currency terms and -5.86% in U.S. dollar terms. The Korean won depreciated -4.18% against the U.S. dollar.
July saw an estimated trade surplus of US$7.8 billion. Monthly exports declined -3.3% from the same month last year, mainly due to continued weakness in prices for oil and petrochemical products. Excluding the petrochemical products category, exports have increased 1.0%. Among the government's 13 broad export industries, only shipbuilding, semiconductors and steel industries saw export growth during the month, raising concerns about declining global trade. By region, most of the country's major export destinations showed declines in demand, except the U.S.
During the month, the Bank of Korea held its policy rate steady at 1.5%. South Korea’s consumer price index for July stood at 0.7%. Core inflation, excluding effects from energy and food products, increased to 2.5% from 2.3% of the previous month. 

Southeast Asia

In July, the MSCI South East Asia Index returned -3.87% in U.S. dollar terms. Notably, the Stock Exchange of Thailand SET Index declined -4.19% in local currency terms (-7.47% in U.S. dollar terms). FTSE Bursa Malaysia KLCI Index advanced 1.01% in local currency terms (-1.04% in U.S. dollar terms).

Macroeconomic data in Thailand remained weak in June. Private consumption in Thailand is still soft at -0.6% year-on-year (YoY), and both consumer and business sentiment indicators weakened in June. Government spending rose strongly, to 22.3% YoY, which may help underpin growth in the second half of the year. Exports contracted sharply, by 8.9% YoY in June, building on the 5.5% contraction seen in May. The weakness was broad-based, with exports of agriculture and manufactured goods falling further. 

Malaysia’s manufacturing activity remained near a 2.5-year low in July as the purchasing managers index contracted for the fourth consecutive month. While external demand was weak, domestic demand was even weaker, leading manufacturers to cut both inventory and raw material purchases for the second straight month. Inflation remained high due to the lingering effects of the implementation of the 6% Goods & Services Tax (GST) and the ringgit’s weakness. 

July 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.