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Matthews Asia Country Updates

For the month ending March 2016

China/Hong Kong

In March, the MSCI China Index returned 11.63% in local currency terms. Hong Kong's Hang Seng Index returned 9.19% (9.47% in U.S. dollar terms) and China's domestic CSI300, the A share index, returned 11.84% (13.59% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the month at 6.45 against the U.S. dollar. The real effective exchange rate was up 0.7% year-to-date through the end of February, and was up by 57% from June 2005, when China began to reform its exchange rate mechanism. 

Strong growth in real (inflation-adjusted) retail sales over the last three months demonstrates that just as there was a minimal positive wealth effect from the market's steep rise, there is unlikely to be a significant negative wealth effect on the way down. In the first two months of 2016, new home sales, on a square meter-basis, rose 30.4% year-on-year, after rising 6.9% for the full year of 2015, and compared to a fall of 17.8% a year ago. Online retail sales of goods rose 25.4% year-on-year through February.

Manufacturing and construction activity continues to be weak, but the largest part of the economy—consumption and services—remains healthy, and the long-awaited rebalancing of the Chinese economy is well underway. This is necessarily leading to slightly slower growth, but this growth comes on a very big base and should be more sustainable. This rebalancing also creates opportunities for investors to focus on the new growth drivers. For the first time ever, services and consumption accounted for over half of China’s GDP—an important milestone in the rebalancing process. 


Indian markets were buoyant in March after the Indian Finance Minister delivered a fiscally conservative budget, leading to increased expectations of further monetary policy easing by the Reserve Bank of India (RBI). The S&P BSE 100 index returned 14.21% in U.S. dollar terms (10.67% in local currency terms) driven by gains in financials, consumer discretionary, and energy sectors.

Contrary to expectations that the Indian Finance Minister may dilute the fiscal consolidation path as outlined last year, he delivered a fairly disciplined budget by maintaining the fiscal deficit target of 3.5%. Prudent fiscal policy allows the Reserve Bank of India more flexibility to continue to reduce benchmark repo rates. Many rate sensitive sectors like financials, consumer discretionary, and industrials did well on back of the rate cut.

In March, the central government reduced the interest rate offered to small savers in schemes like the Public Provident Funds. Interest rates on small savings schemes have been cited by the banking sector as a reason for the weak transmission of repo rate cuts. Given the move by the government, the RBI is expected to exert greater pressure on banks to improve the transmission of rate cuts through the banking system, which should bring down the cost of capital in the economy.

Index returns were supported by a recovery in commodity prices—namely crude oil, iron ore, and copper. As a result, commodity stocks delivered positive returns. The energy sector also performed well as the Indian cabinet approved a new hydrocarbon policy that is aimed at addressing issues plaguing the sector and also attracting more private investment.


In March, the Tokyo Stock Price Index appreciated by 4.73% in local currency terms (5.13% in U.S. dollar terms). At the sector level, materials, energy and consumer discretionary stocks were the best performers while utilities, telecommunications and healthcare all underperformed. The yen strengthened marginally by 0.11% against the U.S. dollar over the month.

February industrial production figures were released in March, showing that output slumped by 6.2% from the prior year. However, consumer spending showed some improvement and increased for the first time since August of 2015, aided by the extra day in February.

Employment data remains strong with the job offers-to-applicants ratio maintaining its multi-decade high of 1.28 despite a marginal increase in the seasonally-adjusted unemployment rate from 3.2% to 3.3%. Despite the apparent tightness in the labor market, annual wage hikes announced by Japan’s leading manufacturers this month fell below expectations. 

Inflation indicators remain benign with February’s consumer price index, excluding fresh food and energy rising by 0.8%. This is a mild uptick compared to January figures but still below the Bank of Japan’s medium- term inflation target of 2%.


During the month, the Korea Composite Stock Price Index (KOSPI) advanced by 4.13% in local currency terms and 12.93% in U.S. dollar terms. The Korean won appreciated by more than 7.5%. The won has been volatile this year due to both increased turbulence in global financial markets as well as the depreciation of the U.S. dollar. 

South Korea’s trade surplus rose to US$9.8 billion in March, US$1.5 billion higher than a year ago due to rapidly declining imports that fell 13.8% year-over-year. While exports fell 8.2% as well, the pace of declines moderated with volumes down by 1.9%. 

The Bank of Korea’s Monetary Policy Committee (MPC) maintained the policy rate at 1.5% in March. Minutes released from the meeting indicated that the domestic economy remained relatively strong, as evidenced by the rising employment rate and declining unemployment. However, the MPC remains concerned about slowing global demand. 

Southeast Asia

In March, the MSCI South East Asia Index returned 9.67% in U.S. dollar terms. Notably, the Philippines composite Index returned 8.86% in local currency terms (12.24% in U.S. dollar terms) and Singapore’s Straits Times Index rose 6.54% in local currency terms (11.25% in U.S. dollar terms).

In a widely expected move, the central bank of Philippines kept its key policy rate on hold at 4.0%. The bank’s decision was heavily influenced by its robust growth outlook and benign consumer price inflation (CPI) reading, which rose by 0.9% for the month of February, well within the bank’s 3% +/- 1% target range. In election matters, the Supreme Court of the Philippines threw out a previous ruling by the election commission that had barred a popular senator from running for president due to issues over her citizenship and length of residency in the country. The decision paves the way for Senator Grace Poe to proceed with her pursuit of the presidency.

In Singapore during the month, the government unveiled its annual budget for 2016, which is expected to return to a surplus of 0.76% of GDP after recording a rare deficit in 2015. The budget unveiled a US$3.34 billion Industry Transformation Programme designed to help companies, especially small- and medium-sized enterprises, to transform their businesses by incorporating automation projects and workforce development. Ratings agency Moody’s lowered its outlook, from stable to negative, for Singaporean banks, citing the impact of poor asset quality on the sector’s profitability. Moody's expects credit conditions to “continue to weaken against the backdrop of slower economic and trade growth, both domestically and in the region.”

March 2016

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.