Matthews Asia Country Updates

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For the month ending September 2018

China/Hong Kong

In September, the MSCI China Index returned -1.70% and Hong Kong's Hang Seng Index returned 0.05%, both in local currency terms. China's domestic CSI300, the A share index, returned 3.23% in local currency terms (2.77% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.87 against the U.S. dollar.

Chinese shares suffered in September as significant headwinds surrounding trade and tariffs proved to be too large a risk for investors during the month. The U.S. seemed keen to escalate the size and scope of tariffs and announced fresh taxes on US$200 billion worth of Chinese imports. China immediately retaliated with tariffs worth US$60 billion on U.S. goods, which has ultimately led many market participants to believe trade issues will impede markets and contribute to uncertainty for months to come. However, there are potential green shoots in China: resilient corporate earnings, a reasonably stable currency, a government willing to re-stimulate the economy as needed and a market that has already priced in the significant fallout from trade disputes. These may all contribute to potential stability in Chinese equities. In addition, MSCI announced that it is considering significantly increasing the weight of China A-shares within its global indexes next year.


In September, the S&P Bombay Stock Exchange 100 Index returned -9.39% in U.S. dollar terms (-7.24% in local currency terms).

India's equity market gave up most of its year-to-date outperformance in September 2018. Investors had viewed India as a safe haven from tariff-related volatility while GDP growth rebounded and the negative effects related to India's Goods and Services Tax abated. Macroeconomic headwinds along with expensive relative valuations, however, hit investor sentiment in September. A weaker rupee along with increased inflationary pressures forced the Indian central bank (RBI) to raise rates and tighten policy. Oil prices spiked in early September and continued to grind higher throughout the month increasing the current account deficit and speculation of a weaker currency. Higher bond yields have lessened the relative attractiveness of equities and the prospect of increased inclusion of Chinese A-shares within certain emerging market benchmarks may lead to a lower absolute weight of Indian equities. One positive is that local investors seem keen to add equities as a means to diversify outside their real estate and gold holdings. The local mutual fund industry is growing and local demand seems likely to continue over the long term.


In September, the Tokyo Stock Price Index returned 5.43% in local currency terms (3.18% in U.S. dollar terms). The yen ended the month at 113.70 against the U.S. dollar.

Japanese shares saw some of the best regional performers in September. Although trade tensions increased between U.S. and China, the focus on Japanese trade seemed to fade slightly during the quarter, and helped boost sentiment and share prices. In addition, the yen soften slightly against the U.S. dollar, supporting exporters and helping the MSCI Japan Index reach its highest levels since January 2018. Prime Minister Shinzo Abe was elected for the third time in late September, which should provide for continuity of policy.

South Korea

In September, the Korea Composite Stock Price Index (KOSPI) returned 1.53% in U.S. dollar terms (0.87% in local currency terms). The Korean won rose by 0.34% against the U.S. dollar.

South Korean equities were relative outperformers, showing slightly positive Index returns in September. Previous price pressures allowed investors to shrug off escalating trade tensions between the U.S. and China. Worries about South Korea's supply chain participation in Chinese exports were put aside as the Korean government is planning to mitigate potential trade-related weakness through increased government spending. The Korean government announced a 2019 draft budget that includes significant increases in social spending focused on social security, health care, education, tourism and job creation.

Southeast Asia

In September, the broader MSCI Index returned -0.51% as emerging market sentiment remained weak.
Indonesia's JCI index returned -1.10% (-0.68% in local currency terms). The month saw the Indonesian rupiah flirt with the psychologically important level of USD/IDR 15,000 in a reflection of the externally driven market environment and Indonesia's external funding exposure. The central bank hiked rates by another 25 basis points (0.25%), bringing total rate hikes since May this year to 150 basis points (1.5%). In addition, the government introduced new measures to reduce the country's current account deficit including import duties on a range of consumer goods; a 20% biofuel mandate across the country to reduce fuel imports (replacing them with palm oil); and most recently an exporter requirement to convert half of export receipts into Indonesian rupiah. Currency depreciation coupled with higher oil prices have had limited impact on inflation with the latest inflation print more moderated than expected.
Thailand's SET Index returned 3.64% (and 2.23% in local currency terms) as its current account surplus continued to act as a buffer from external volatility and major election-related legislative bills were passed, reducing uncertainties around a general election. The passing of the two remaining election-related bills put the election timeline in motion and set the potential range of dates from late February 2019 to early May 2019. Election-related stimulus and fiscal spending are likely to ramp up, helping to maintain the domestic demand momentum that was observed in the most recent quarterly GDP and in higher-frequency indicators. Consumer confidence was the highest in the last five years.
The Philippines' PSEi Index fell -8.09% (and -7.31% in local currency terms) as elevated inflation remained a concern. The inflation reading was 6.7% in September on the back of higher food prices. Worse-than-expected damage to food crops by Typhoon Mangkhut and rising oil prices are expected to increase upside risks to inflation. The Philippine central bank (BSP) raised policy rates another 50 basis points to 4.50%, the highest since 2011. Inflationary and current account deficit pressures seem likely to persist given that real policy rates are still negative; domestic demand remains firm; recent transportation prices have increased; metro Manila has seen a wage hike, rice prices following the destruction from the recent typhoon have yet to flow through and FDI inflows are still strengthening. Continued hawkish signaling from the BSP should help to provide some support for the Philippine peso, particularly if emerging market volatility begins to settle.

Source: Bloomberg 

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.