Matthews Asia Country Updates

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For the month ending November 2017

China/Hong Kong

In November, the MSCI China Index returned 1.67% and Hong Kong's Hang Seng Index returned 3.40%, both in local currency terms. China's domestic CSI300, the A share index, returned -0.01% in local currency terms (0.34% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.61 against the U.S. dollar.
Chinese equities posted decent gains for the month, but were also the source of market volatility for emerging markets late in November. Investor sentiment has improved dramatically year to date as upside surprises in economic activity, along with a strong property market, a reasonable uptick in corporate earnings and the prospect of stable government policy post the 19th Party Congress all contributed to stronger equity prices. In November, investors began to focus on the prospects for 2018. The government’s priority of “quality of economic growth” versus “quantity of growth” has caused investors to speculate whether the government is willing to let economic growth slip next year. In addition, investors have taken the recent spike in interest rates to be an indication of the government’s intention to “tap the brakes” on growth. We do not consider moderately higher rates a concern as credit growth in the system is still fairly robust and more importantly in-line with nominal economic growth in China. Another interpretation of higher rates would be that the government continues to support the measured deleveraging of risky sectors within the economy by continuing to diminish supply-side overcapacity and speculative funding of wealth management products while working to contain its hot real estate market.

For more on China, please read the latest issue of Sinology.


In November, the S&P Bombay Stock Exchange 100 Index returned -0.46% in U.S. dollar terms (-0.60% in local currency terms). Indian stocks were lackluster and posted mild losses in November. Although India’s domestic investors continued to pour cash into equities, foreigners remain cautious on current valuations vis-à-vis near-term earnings prospects. No doubt the difficult reforms undertaken in 2017 have worked to disrupt the economy. Demonetization and the implementation of the Goods and Services Tax (GST) have caused small and large businesses alike to re-evaluate their methods of making and receiving payments, increasingly to incorporate digital methods, and reorganize their supply chains and distribution channels. The disruption has slowed economic activity. But there are indicators that the environment is stabilizing. The Purchasing Managers' Index for manufacturing in November rose to 52.61—marking its highest level in 13 months. In addition, after five quarters of decline, GDP growth rose to 6.3%2 for the September quarter. Auto sales registered double-digit growth3 in November and downward revisions to corporate earnings are slowing. Sentiment seems to be improving. Politics is a bright spot in India as Prime Minister Narendra Modi enjoys widespread support. Upcoming state elections in Gujurat should reinforce the strength of Modi’s party. One question remains as to whether India’s central bank can further ease monetary policy, or if the prospects of higher growth and rebounding inflation will abate it for now and even tilt it toward tightening in 2018.


In November, the Tokyo Stock Price Index returned 1.48% in local currency terms (2.54% in U.S. dollar terms). The yen ended the month at 112.51 against the U.S. dollar.

Japan’s equity markets posted some of the region’s best returns in November. Japan seems to be in a sweet spot as Abenomics has worked to support labor markets and domestic demand and the uptick in the global economy has underpinned exported-oriented businesses. Japanese stocks recently broke through 25-year trading ranges and global investors are taking notice. Corporate earnings revisions continue to grind higher and valuations for those earnings remain relatively attractive relative to other developed markets. Prime Minister Shinzo Abe’s victory in last month’s snap election should support continuity of his government policies through 2021. However, one potential stumbling block is Abe’s plan for an October 2019 consumption tax hike. Abe is calling for the additional tax revenue to be allocated toward education and child care spending rather than paying down debt. The call for a consumption tax hike is worrisome as a similar action in 2014 was a net negative for the economy.

South Korea 

In November, the Korea Composite Stock Price Index (KOSPI) returned 0.99% in U.S. dollar terms (-1.86% in local currency terms). The Korean won rose by 2.97% against the U.S. dollar.

South Korea’s equity market was one of the better performers in November. The Bank of Korea has kept policy rates unchanged, highlighting that the trend of economic growth has continued, labor markets remain in an uptrend, exports and incoming investments have been strong and domestic consumption has picked up moderately. Many market participants are calling for upside surprises to GDP growth given President Moon Jae In’s stimulative economic and fiscal policies. Earlier this year, President Moon declared a 16.4%4 hike in 2018’s minimum wage, which should underpin the domestic economy while stoking inflation and fears of moderately higher interest rates. Geopolitical tensions have calmed recently but remain a source of uncertainty for the economy.

Southeast Asia

In November, the broader Southeast Asian index, MSCI ASEAN, gained 1.92%. Indonesia's JCI Index reached new highs, however, it finished the month lower at -0.75% in local currency terms (-0.63% in U.S. dollar terms). National accounts of consumption growth fell below expectations for 3Q17, however, higher frequency data suggests activity has begun to tick up as both private and government spending ramp up. Also during the month, the island of Bali, a major tourist destination, was shaken by a volcanic eruption and experienced temporary transport disruptions. The likely effect to the economy is expected to be minimal. Bali accounts for 42%5 of total Indonesia tourist arrivals and received 11.6 million tourists from January to October this year. 
In Thailand, the baht has risen close to 10% this year, and third quarter GDP data released during the month showed the country's retail and manufacturing sectors marked the biggest improvements. This has been congruent with strong GDP data that showed stabilization in private consumption. Additional government stimulus spending, a low income spending program and the "shop for Thailand" middle-income stimulus package should provide some boost for the fourth quarter. 
The Philippines PSEi Index was down -1.28% in the month, but remained among the top performers across ASEAN with 22.5% YTD gains. GDP data released during the month showed Philippines GDP growth accelerated in 3Q17 to 6.9% YoY from 6.7% in the previous quarter. Tax reform was a highlight during the month when the Philippine Senate approved its version of the first tax reform package, and is likely to be supportive of consumption. 

Sources: Bloomberg unless otherwise noted

1-4 The Economic Times
5 Indonesia Central Bureau of Statistics

The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect 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 investment vehicles. Investment involves risk. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.