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Matthews Asia Country Updates

For the month ending March 2015

China/Hong Kong 

In March, the MSCI China Index returned 2.41%. Hong Kong's Hang Seng Index returned 0.74% (0.77% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned 13.39% (14.64% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the month at 6.21 against the U.S. dollar.

Over the month of March, China released disappointing January and February figures that still showed a weak economic environment. China combines both months in reporting these macroeconomic figures to smooth out any distortions due to the Chinese New Year holiday. Growth in retail sales (+10.7%), fixed asset investment (+13.9%) and industrial output (+6.8%) all missed expectations, and recorded the weakest levels in recent months. March’s purchasing manager’s index (PMI) further supported signs of a weak macro environment. HSBC’s flash PMI recorded a reading of 49.2, which weakened against February’s 50.7. Any reading under 50 indicates that the economy is undergoing economic contraction. Industrial earnings growth declined -4.2% over the January/February period as low commodity prices negatively impacted the profitability of certain upstream sectors, such as oil, metal and mining. 

Another challenge China is dealing with is its weak property sector. Home sales and new property starts continued to see declines, marking 17% and 18%, respectively during the January and February period. China’s slumping property markets motivated government intervention in March. China’s government lowered the down payment ratio for second-time home buyers from to 70% to 40%, more than the expected reduction to 50%. Home buyers in China are also exempt from business tax on sales of homes owned for more than two years. Previously, home buyers would qualify for this exemption only if they owned their homes for at least five years.

March’s weak macro figures have spurred expectations of further monetary easing in the country. In the past six months, China has already cut interest rates twice and lowered banking required reserved ratios once.
China’s economy has faced challenges over the past two years given a weaker global economy and lower domestic demand for investment in such areas as infrastructure, goods and services. Domestic demand has also slackened given the country’s overcapacity issues and anti-corruption measures that weigh on domestic sentiment. 


During March, India’s market corrected amid resurging inflationary forces, a slowing pace of economic reforms and decelerating foreign inflows. The Bombay Stock Exchange 100 Index fell -5.15% in U.S. dollar terms (-4.18% in local currency), led by a correction in public sector banks, while pharmaceutical stocks were up. This may have occurred as a result of investors chasing more defensive names amid reforms uncertainty. 

Foreign Institutional Inflows for March reached about US$1.69 billion, compared to US$4.31 billion in the first two months of the year. Inflation, as measured by the consumer price index, accelerated to 5.37% for February, compared to 5.19% for the previous month. Unseasonal rains in North India further fueled concerns over a rise in food inflation. It did not come as a surprise that the central bank paused plans to loosen monetary policy during their latest policy meeting. Also on the reform front, the government did not have much success, except for passing an insurance bill that raises a foreign ownership cap from 26% to 49% among insurance companies, potentially attracting over US$3.2 billion in foreign inflows into the sector. A land bill ordinance is all set to lapse or again be re-promulgated, as there seems to be a slim chance of it getting passed by the Upper House. 

On a positive note, India’s industrial growth continued to be positive at 2.6% for January, despite being slower than 3.2% in December. However, it seems the credibility of such statistics has come under question due to significant revisions of historically reported data. All eyes are set on the upcoming corporate earnings season for any indicators of improvements in fundamentals. 


In March, the Tokyo Stock Price Index increased by 1.94% (1.77% in U.S. dollar terms). Information technology, consumer staples and health care stocks outperformed while energy, telecommunications and materials stocks were the largest underperformers. The yen was flat against the U.S. dollar over the period.

Macroeconomic data during the month was mixed. The fall in industrial output in February of 3.4% was far sharper than expected, raising concerns over domestic demand. However, February export numbers beat expectations as they rose 2.4%. This was not as significant as January’s increase of 17% due to the timing of the Lunar New Year in China but nevertheless adds to the positive trend.

Inflation data remained weak with the consumer price index, excluding fresh food and energy, increasing only 2% in February despite the impact of the 3% sales tax hike in April 2014.


During the month, the Korea Composite Stock Price Index advanced 2.78% in local currency terms and 2.06% in U.S. dollar terms. The Korean won depreciated 0.68% against the U.S. dollar.
March saw an estimated trade surplus of US$8.4 billion. Monthly exports declined 4.2% compared to the same month the prior year. But imports declined further by 15.3%, resulting in a record high trade surplus. There was notable growth in certain computer part industries, including solid state drives (SSD), offshore plants and semiconductors. Meanwhile, the steel industry struggled due to global oversupply factors, and automobile industries were hurt by Russia’s troubled economy. By region, the U.S. and Latin America remained robust destinations for the country's export products. 

Korean export levels have outpaced those of other exporters in the region since October 2014, when oil prices started dropping. As of the fourth quarter of 2014, Korea bumped France to become the sixth largest exporter in the world.
During the month, the Bank of Korea cut its policy rate from 2.00% to 1.75%, after lowering the rate twice in 2014. The bank expressed a concern over weak private consumption and industrial investment that may result in slower-than-expected economic growth. Korea’s consumer price index for March was 0.4%, the lowest in the last 16 years. Core inflation, excluding effects from energy and food products, stood at 2.3%. 

Southeast Asia

In March, the MSCI South East Asia Index returned -0.40% in U.S. dollar terms. Notably, the Philippine Stock Exchange PSEi Index advanced 2.72% in local currency terms (1.31% in U.S. dollar terms). The Stock Exchange of Thailand (SET) Index declined 2.11% in local currency terms (5.65% in U.S. dollar terms). 

In the Philippines, the PSEi Index recorded an all-time high of 7940.49 due to positive economic data and foreign portfolio investments. Foreign portfolio investments net inflows increased by US$1.2 billion (+102% month-on-month) in February. The information technology/BPO industry, which now employs over a million workers, grew revenues by 19% to US$18.4 billion in 2014. The IT-BPO Association is targeting US$21.3 billion in revenues and 1.18 million employees in 2015.  

In Thailand, its February private consumption deteriorated further to -2.6% year-on-year from -1% year-on-year in January. High household debt appears to be the single-most important headwind for consumption and has risen again from 82% of GDP in 4Q13 to 86% in 4Q14. The Bank of Thailand (BoT) cut its 2015 GDP growth forecast to 3.8% (from 4.0%). Its 2016 GDP growth forecast has also now been set at 3.9%. The BoT also said "risk to its projection leans toward the downside."

March 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.