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Country Updates

For the month ending June 2014

China/Hong Kong

In June, the MSCI China Index increased 3.30%, Hong Kong's Hang Seng Index returned 1.31% (1.35% in U.S. dollar terms) and China's domestic CSI300 A share index returned 1.31% (2.01% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.20 against the U.S. dollar.

In June, China’s Purchasing Managers Index (PMI) readings further improved given better business sentiment that was driven by increased new order flows, higher production levels and increased raw material purchases. The official PMI rose to 51.0 from 50.8 in May and the HSBC flash PMI reading increased to 50.8 in June from 49.4 in May. This is significant because a PMI above 50 indicates manufacturing expansion whereas a reading below 50 is an indication of contraction.

May’s activity data continues to be indicative of an improved macroeconomic environment. Industrial production grew 8.8% in May compared to 8.7% in April, fixed asset investment grew 17.0% in May versus 16.8% in April and retail sales grew 12.5% in May compared to 12.1% in April.

Inflation in China still appears to be in check. May’s consumer price index rose to 2.5% from 1.8% in April, easing concerns about potential deflation. Given that inflation is manageable, there remains room for the central bank to do more credit easing. In May, new bank loans increased to US$140 billion, and this accelerated credit growth could signal that policymakers are doing more to prevent economic risks and are, therefore, becoming more serious about ramping up pro-growth measures.

As expected, Beijing has continued to roll out many “mini-stimulus” measures to support an annual GDP growth target of approximately 7% to 7.5%. Recent measures include those focuses on further monetary easing, such as the adjustment of the loan-to-deposit ratios required of banks in order to help ease credit supply.


In June, the S&P Bombay Stock Exchange 100 Index increased 5.77% in local currency terms (4.40% in U.S. dollar terms). Foreign institutional equity inflows amounted to US$522 million, down from US$3.4 billion for the previous month when optimism was fueled by India’s election results.

India’s wholesale price index increased by 6.0% in May versus 5.2% the previous month. The consumer price index moderated to 8.3%, down from April’s 8.6% increase. The May trade deficit increased to US$11.2 billion, up from US$10.1 billion for the previous month, partly due to increased oil imports. The central bank cut the statutory liquidity ratio by 50 basis points (0.50%) to 22.5%,which should benefit liquidity, but has left its policy interest rate unchanged.

The newly formed government of Narendra Modi appears to be taking initial steps at fiscal consolidation. India’s railway fares were increased by 14.2% for passengers and by 6.5% for freight. Investors are sure to keenly watch for this year’s federal budget, which is to be presented in July. It is expected to demonstrate the government’s resolve to control its deficit, especially due to the redistributive policies of India’s previous government. Also, the expectation of reduced friction with the business community could boost investment.

Given the light monsoon season, there is concern that the water-dependent, agricultural sector may suffer, which could impact the new government’s efforts to control food inflation.


In June, the Tokyo Stock Price Index rose 5.15% (5.09% in U.S. dollar terms). On a sector basis, materials, information technology and financials were the largest outperformers while telecommunications services and energy were the main underperformers. The yen strengthened by 1.03% during the month.

Macroeconomic data released during the month was mixed. The Bank of Japan’s Tankan Survey, a quarterly corporate poll used to measure business sentiment, indicated a drop in confidence since March. However, it also revealed that large corporations expect to increase capital spending by an average of 7.4% over the coming year. This figure was higher than widely anticipated and indicates economic conditions are expected to improve.

During the course of the month, the government announced its intention to reduce the corporate tax rate from what is currently among the highest in the developed world. This cut will commence as early as next year, and is likely to be implemented in stages.

The core consumer price index, excluding fresh food, rose 3.4%, marking the fastest pace of growth in over 30 years. But it is important to note, after removing the estimated impact of April’s consumption tax hike, the underlying rate of 1.4% was down marginally from 1.5% in the prior month.


During the month, the Korea Composite Stock Price Index advanced 0.36% in local currency terms while it rose 1.31% in U.S. dollar terms. The Korean won appreciated 0.82% against the U.S. dollar.

Trade data saw an estimated surplus of US$5.3 billion. Exports grew 2.5% compared to the same month last year, totaling 2.6% annual growth for the first half of the year to US$283.6 billion. During the first half, smartphones and semiconductors led exports alongside strong overseas sales among autos, marine vessels and steel. The recently robust monthly trend in the Purchasing Managers Indices of major economies—including the U.S., European Union, China and Japan—may suggest continued growth of the country's exports.

During the month, the Bank of Korea held its policy rate steady at 2.5%. The consumer price index for May rose by the same level as the prior month: 1.7%.

Southeast Asia

In June, the MSCI South East Asia Index advanced 1.12% in U.S. dollar terms. Notably, Thailand’s SET Index advanced 4.95% in local currency terms (6.28% in U.S. dollar terms) and the Philippine Composite Index advanced 3.04% in local currency terms (3.52% in U.S. dollar terms). 

Following the military coup in Thailand in May, foreign investors continued to sell with net outflows in June of US$14 million versus US$1.1 billion in May. Year-to-date net outflows now reach US$1.2 billion, a continuation of the US$6.2 billion outflows seen last year. Thailand’s headline inflation in May was 2.62% while core inflation was 1.75%. Core inflation was within the Bank of Thailand’s target range of 0.5% to 3.0%. The first Board of Investment meeting, headed by the leader of the coup as chairman, approved 18 new investment projects worth US$3.80 billion. Both autos and auto parts were among the major industries receiving approvals for new projects.

In the Philippines, the central bank kept policy rates unchanged at 3.5%, but raised rates on Special Deposit Accounts (SDA) by 25 basis points (0.25%) to 2.25%. The hike in the SDA rate is meant to soak up excess liquidity in the system and keep inflation in check. Remittances from overseas grew by 5.2% year-over-year to US$1.9 billion in April 2014; this is the slowest growth rate since March 2013. Year-to-date, remittances totaled US$7.39 billion, up 5.8%.

June 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.