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Country Updates

For the month ending March 2014

China/Hong Kong

In March, the MSCI China Index decreased -1.69%, Hong Kong's Hang Seng Index returned -2.64% (-2.59% in U.S. dollar terms) while China's domestic CSI300 A share index decreased -1.49% (-2.64% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.22 against the U.S. dollar.

During the month, China released data for January and February economic activity that showed continued signs of a slowdown, albeit likely a gradual one. Industrial production and export growth figures were both weaker than previous months. While it is still uncertain whether this weakness was caused by seasonal factors, such as the Lunar New Year, it may indicate a weaker macro landscape could be emerging.

China’s consumer price index (CPI) was 2% in February, a decline from 2.5% in January. This subdued level of inflation is again supportive of a more neutral monetary policy and should enable China’s central bank to tame rising rates. China’s retail sales for the months of January and February grew 11.8%, compared to growth of 12.3% during the same period last year. China’s credit data was weaker than expected in February. New bank loans amounted to approximately US$104 billion in February compared to US$212.2 billion in January. Despite this, bank loans reached 14.2% and total social financing growth, China's widest measure of credit, reached 18.1% in February. Hence, overall credit growth remains reasonably intact.

In early March, China’s National People’s Congress announced various targets for 2014 during annual conference. Its GDP, CPI and M2 (a measure of money supply that includes cash and checking and other deposits) targets are all unchanged from 2013. The government’s retail sales target was set at 14.5% for the year, also unchanged from its 2013 target. Fixed asset investment growth was targeted at 17.5%, slightly lower than the 18% it set for last year. These targets can indicate a stable pace of economic growth and also the focus away from infrastructure investment led growth in the economy.

China’s central bank also announced that the renminbi’s (RMB’s) daily trading band would widen to 2% from 1% in mid-March. The widening of the RMB trading band implies that there may likely be more currency volatility over the medium term.


In March, the Bombay Stock Exchange 100 Index increased 7.63% in local currency terms (11.06% in U.S. dollar terms). Materials and industrials were top performers while technology and health care were the worst performing sectors. Foreign institutional equity inflows increased to US$3.3 billion from US$229 million in the previous month. The pace of foreign investment activity appears to be based on increasing optimism of the possibility of a stable government formation following upcoming federal election results.

Spread across multiple phases, the elections begin in early April, and results are expected on May 16. After 10 years of Congressional-led coalition rule, several opinion polls indicate an imminent change. The key question is whether any coalition will have sufficient seats to form a stable and decisive government. As we have highlighted in the past, the travails of India in the last few years have centered mainly on policy paralysis amid top government levels.

During the month, inflation continued to subside somewhat. India’s wholesale price index declined to 4.7% in February versus 5.1% the previous month. The consumer price index fell to 8.1%, down from January’s 8.8%. The trade deficit marginally decreased to 5.3% of the GDP in February, down from 6.5% in the previous months. While the corporate earnings reporting season will soon commence, we suspect politics will continue to be a dominant force for the markets over the short term.


In March, the Tokyo Stock Price Index declined for the third consecutive month, falling -0.72% in local currency terms (-0.90% in U.S. dollar terms). On a sector basis, performance was broadly in line with the market, although utilities were particularly weak. The yen was down 1.39% against the U.S. dollar over the period.

Macroeconomic data released during the month was somewhat disappointing; with February’s export growth below expectations and The Bank of Japan’s quarterly Tankan Survey highlighting industry caution over the impact of the 3% consumption tax hike to take effect on April 1. Given this uncertainty, large firms are forecasting a subdued 0.1% rise in capital expenditure over the coming financial year while small firms plan to reduce investments by nearly 25%. So while larger firms are cautious, smaller firms have more trepidation.

There were positive signs from the labor market as the job offers-to-applicants ratio rose to 1.05, its highest level since 2007. The seasonally adjusted unemployment rate also fell to its lowest rate since the global financial crisis, to 3.6%. The hope is that further improvements in these trends will culminate in upward pressure on wages.

The consumer price index, excluding fresh food and energy, rose 0.8% in February, a mild increase on the preceding month’s figure as the central bank works toward its 2% inflation target.


During the month, the Korea Composite Stock Price Index advanced 0.28% in local currency terms (1.06% in U.S. dollar terms) as the Korean won appreciated 0.21% against the U.S. dollar. 

Trade data saw a surplus of US$4.2 billion. Exports grew 5.2% compared to the same month last year due to strong sales of information technology products in the developed markets, including the U.S. and E.U. Imports grew 3.6% year-over-year on increased demand for gas and oil as well as consumer goods. 

During the month, the central bank appointed a former senior official as its new governor, and also held its policy rate steady at 2.5%. New Bank of Korea Chief Lee Ju-yeol is generally well-respected, and is widely considered a policy moderate. However, given his lifetime career at the central bank and his somewhat more hawkish stance than his predecessor, his position at the helm may now raise public expectations of a rate hike in order to better control inflationary pressures. The consumer price index for March rose to 1.3% from the previous month's 1.0%.

In late March, President Park Geun-hye held a seven-hour, nationally televised hearing with ministers and business leaders to focus on regulatory reform. Park expressed her commitment to eliminate unnecessary business restrictions and implement measures for better job growth in efforts to boost the domestic economy. 

Southeast Asia

In March, the MSCI South East Asia Index advanced 2.98% in U.S. dollar terms. Notably, Indonesia’s Jakarta Stock Exchange Composite Index advanced 3.35% in local currency terms (5.30% in U.S. dollar terms) and Thailand’s Bangkok SET Index advanced 4.60% in local currency terms (4.91% in U.S. dollar terms). 

The Indonesian stock market outperformed as economic data was solid and optimism high ahead of the upcoming general election. February’s consumer price index inflation of 7.75% year-over-year was below consensus, and the central bank said it expects inflation to return to its target corridor this year. The government also unveiled a third package of economic measures to improve the country’s current account and keep more foreign investor profits in the country. Ahead of July’s presidential election, the popular governor of Jakarta, Joko Widodo, was selected as a candidate. Widodo is known for his “can do” politics, clean background and populist policies, and many view his potential presidency as a boon for infrastructure development and policy implementation. 

During the month in Thailand, the political crisis that has gripped the country since last year moved closer to resolution. The Constitutional Court said the February election was unconstitutional because it did not take place on the same day across the country and therefore violated a clause in the constitution. The country also lifted the state of emergency in Bangkok, helping to restore some confidence as anti-government protests subsided. Thailand’s central bank cut its policy rate by 25 basis points (0.25%) to 2.0%, saying “downside risks to growth have risen in the wake of the prolonged political situation” and that “monetary policy has some scope to ease, in order to lend more support to the economy.”

March 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.