Matthews Asia Country Updates

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For the month ending January 2019

China/Hong Kong

In January, the MSCI China Index returned 11.31% and Hong Kong's Hang Seng Index returned 8.14%, both in local currency terms. China's domestic CSI300, the A share index, returned 6.34% in local currency terms (9.17% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.70 against the U.S. dollar.
Investors have been hopeful that the U.S.—China trade talks, which resumed in late January, will bring a positive outcome before the increased tariffs on Chinese goods are due to take effect March 1.
Chinese equities posted some of the strongest results in the region as local sentiment improved and recent negative economic results showed signs of stabilizing. Chinese business sentiment has improved as the government has allowed credit to expand and manufacturing data is showing signs that the manufacturing base is holding steady at current levels. The Chinese government appears ready to stimulate the economy, if needed, and utilize whatever tools are necessary. At the end of January, high-ranking officials from the U.S. and China resumed trade negotiations. Both countries announced that the talks were constructive with significant progress on topics such as the U.S.—China trade imbalance, forced technology transfer, intellectual property rights, cyber-theft and access for U.S. companies into China's market.

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


In January, the S&P Bombay Stock Exchange 100 Index returned -2.34% in U.S. dollar terms (-0.86% in local currency terms).

Indian equities were the weakest-performing in the region, posting negative returns when all other major Asian markets were strongly positive. Mid- and small-cap stocks resumed their underperformance as did businesses within the consumer discretionary, industrials and information technology sectors. Macro conditions deteriorated slightly as oil prices began to recover, putting pressure on the rupee, which declined by over 1.8% during the month. In addition, uncertainty continued to build surrounding the national election scheduled for April 2019 and whereby the current government seems to be losing support to the opposition. Pressure to recoup popular support is affecting government policy, evidenced by January's fiscal year 2019 budget release. Although the headline fiscal deficit was largely unchanged at 3.4%, the budget allowed for cash transfers to farmers and tax cuts to lower-income segments in an effort to boost popular support.


In January, the Tokyo Stock Price Index returned 4.92% in local currency terms (6.45% in U.S. dollar terms). The yen ended the month at 108.89 against the U.S. dollar.

Japanese equities were positive in January, lagging slightly behind other developed markets such as the U.S. but making up for part of the losses realized in December 2018. Small-cap stocks in Japan rallied but still fell short of large-cap stock returns during January. Similarly, value-oriented companies have continued to outperform their more quality counterparts thus far in 2019. Stock valuations remained attractive, hovering around 10-year lows at the MSCI Japan Index level. Earnings momentum is still being scrutinized by market participants but seemed to be roughly in-line with current valuations.

South Korea

In January, the Korea Composite Stock Price Index (KOSPI) returned 8.19% in U.S. dollar terms (8.03% in local currency terms). The Korean won declined by -0.16% against the U.S. dollar.

South Korean equities bounced strongly in January, influenced considerably by the fading of headwinds affecting emerging and Asian markets in 2018. U.S. dollar weakness along with a more benign environment surrounding trade and already attractive valuations helped underpin Korean stocks.

Southeast Asia

In January the broader MSCI ASEAN Index gained 6.50% as sentiment improved for Asian markets with a more dovish U.S. Federal Reserve, weaker U.S. dollar outlook and lower oil prices. 

The Philippines has been one of the best-performing markets in the region so far this year, gaining 8.09% in January (7.31% in local currency terms). Tightening domestic liquidity conditions should begin to ease as capital flows turn net positive and a falling inflation trajectory allows the central bank to pause interest rate hikes while resuming its plan to cut the required reserve ratio (RRR). This should in turn support private investment activity while public investment spending, which has been growing at a rapid pace on the back of President Rodrigo Duterte's aggressive infrastructure agenda, is likely to accelerate once the 2019 budget impasse is resolved. Conditions should remain conducive for private consumption, improving further when the budget issues ease given increased social spending allocations.

Thailand's SET Index gained 9.40% during the month (5.0% in local currency terms). Thailand's election commission (EC) officially announced the 2019 general election to be held March 24. The EC is expected to declare the results by May 9. This will be the first vote since the military coup in May 2014.

The firm election timeline should help to dispel uncertainty and generate increased domestic confidence, which will likely be supported by increased government spending biased toward populist cash transfers to various segments of society. The military government has already announced several fiscal measures in recent months, including welfare support for lower-income households in the form of cash allowances; subsidies on utility bills; subsidies for rubber farmers amid falling prices; cancellation of agricultural debt; and visa exemptions for inbound tourists. 

Indonesia's JCI Index gained 9.99% in January (5.47% in local currency terms). The Indonesian equity market made strong gains with easing external conditions, lower oil prices and broad positive sentiment. Bank Indonesia held policy rates at 6% following the dovish U.S. Federal Reserve outlook and suggested a benign policy rate trajectory for the country. Credit growth has recovered to low-teens levels from high single-digit growth during the middle of last year, supporting consumption and earnings growth this year. The current account deficit remains a key target variable for Indonesia, with the current account deficit target set at 2.5% of GDP in 2019. On the one hand, the central bank was confident about deceleration of infrastructure-related imports in 4Q18. On the other hand, however, state-owned enterprise infrastructure contracts issues have jumped so far this year, and private investment activity is likely to ramp up following the national and presidential elections to be held in April, driving capital imports higher.

Sources: Bloomberg and CEIC

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.