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Matthews Asia Country Updates

For the month ending December 2014

China/Hong Kong

In December, the MSCI China Index returned 1.16%. Hong Kong's Hang Seng Index returned -1.58% (-1.56% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned 25.81% (24.50% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.21 against the U.S. dollar, compared to 6.11 at the end of September.

China’s economic figures for the month of November, released in December, showed that overall economic growth was below market expectations. Industrial production dropped to 7.2% in November from 7.7% in October. Compared to a year ago, fixed asset investment (FAI) growth remained flat at 15.8% during the month. Infrastructure spending continued to be the biggest contributor to FAI growth and was largely driven by railway investment.

In November, the consumer price index (CPI) was 1.4%, compared to 1.6% in October—and marked its lowest level since November 2009. Food inflation declined to -0.4% from -0.2% in October. Warmer-than-usual weather ensured good harvests and food prices generally declined in the second half of the year. Furthermore, non-food inflation fell to -0.1% from +0.2%, due to lower oil prices. Retail sales in November registered growth of 11.7%.

China’s domestic A-shares market staged a strong rally in December. The Shanghai Composite Index returned nearly 21%—approaching five-year highs—and has been boosted primarily by anticipation of further government stimulus measures.  The financial sector in particular has benefited from this improved market sentiment. China’s overall macroeconomic figures still appear sluggish, and since the interest rate cuts announced in November, the market has been expecting more government stimulus to help lift the economy.


In December, the Tokyo Stock Price Index decreased -0.1% (-0.73% in U.S. dollar terms). Energy, materials and utility stocks were the largest outperformers while telecommunications, information technology and financials were the largest underperforming sectors. The yen weakened by 1.17% against the U.S. dollar over the period.

Following his recent decision to call a snap election, Prime Minister Shinzo Abe’s ruling coalition secured a two-thirds majority in what has been billed as an endorsement for his economic agenda. However, given the record low turnout and disappointing macroeconomic data over the month, this has been accompanied by some skepticism. 

The Bank of Japan’s quarterly Tankan survey, a quarterly assessment of over 10,000 domestic enterprises, indicated that business conditions have marginally improved since September’s poll. However, survey results suggested more caution based on expectations for the coming quarter, with small companies in particular indicating they expect the environment to worsen.

Retail sales growth, which has been closely monitored since the consumption tax hike in April 2014, fell below expectations with a mere 0.4% rise for November, while the consumer price index was also slightly weaker than expected at 2.4% on a year-over-year basis. This metric also remains below the Bank of Japan’s long-term inflation target of 2% when adjusted for the tax increase.

Southeast Asia

In December, the MSCI South East Asia Index declined -2.96% in U.S. dollar terms. Notably, Thailand’s SET Index declined -6.04% in local currency terms (-6.06% in U.S. dollar terms). Indonesia’s Jakarta Stock Exchange Composite Index advanced 1.50% in local currency terms (-0.16% in U.S. dollar terms). 

Indonesia’s headline inflation rose to 8.4% year-over-year in December, from 6.2% in the previous month. The rise was mainly driven by the increase in fuel prices following subsidy cuts. High inflation is not expected to persist based on historical data of past subsidy cuts that have led just temporarily to inflationary pressures. President Joko Widodo’s government continued to make key appointments and expand on policy measures. The new head of the Investment Coordinating Board has targeted investment from export-oriented and labor-intensive industries in order to support the government’s target of 2 million new jobs a year. 

In Thailand, the central bank left its policy rate unchanged at 2.00%, in line with consensus expectations. The central bank continued to set a dovish tone in its policy statement reflecting downside risks to growth and subdued inflationary pressures from lower oil and food prices. The Bank of Thailand projected 0.8% economic growth for Thailand for 2014, down from earlier estimate of 1.5%. Growth estimates for 2015 were also revised down from 4.8% to 4.0%.


In December, the S&P Bombay Stock Exchange 100 Index lost -3.15% (-4.62% in U.S. dollar terms). Foreign institutional investments saw outflows in December, compared to inflows in November. Overall, macroeconomic figures released during the month of December remained mixed. On one hand, India announced that its November core sector year-on-year output growth reached a five-month high of 6.7%. This was an improvement from October’s 6.3% growth. India’s core sectors comprise a total of eight essential industries including coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity. In total, these contribute to 38% of overall industrial production, a parameter that the Reserve Bank of India (RBI) considers when framing its monetary policy.

On the other hand, India’s fiscal deficit, the gap between government spending and expenditure, reached 99% of its full year target of 4.1% of GDP in November. Hence, further tightening of government expenditures are expected in the months ahead (India’s fiscal year ends March 2015). India’s government has put in place a fiscal consolidation roadmap that strives to lower the deficit to 3% of GDP by 2016. 

Inflation in India reached 4.38% in November, marking a fourth straight month of decline, and reached its lowest level since 2012. India’s falling inflation has been largely due to lower oil and food prices. Lower levels of inflation are also spurring the possibility of a rate cut by the RBI. 

India’s winter parliament came to a close in December without much success on the reform front. Since the government does not have majority in the Rajya Sabha, or Upper House, it was not able to push through some key legislative bills. It eventually resorted to promulgating ordinances for certain bills, which have passed some measures into law. But these changes will need approval during the next parliamentary session. One such law that needs approval is the goods and services tax (GST), deemed as India’s biggest tax reform since gaining independence decades ago. India seeks to lower the cost of doing business by creating a uniform tax structure across the country. This tax is also expected to help boost the government’s fiscal revenues and is expected to be taken up in the Upper House in the budget session. If passed, it will likely be rolled out in April 2016.  


During the month, the Korea Composite Stock Price Index declined -3.29% in local currency terms (-1.81% in U.S. dollar terms), as the Korean won appreciated 1.54% against the U.S. dollar.
Exports continued to be robust in December, with an estimated trade surplus of US$5.8 billion. Semiconductors, mobile devices and machinery exports to the U.S. and European markets were the strongest. While total imports declined due to weak oil prices, imports of capital goods and consumables grew, suggesting sound consumer demand and capital investments. Throughout the year, it was notable that the exports of small- and mid-sized companies outperformed large conglomerates, by a large margin. Also, trade volumes with partner-countries participating in the free trade agreement (FTA) outgrew volumes elsewhere.
During the month, the Bank of Korea held its policy rate steady at 2.0%. The consumer price index for December stabilized to 0.8% from the previous month's 1.0%, led by declining fresh food prices.

December 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.