Matthews Asia Country Updates

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For the month ending June 2019

China/Hong Kong

In June, the MSCI China Index returned 7.53% and Hong Kong's Hang Seng Index returned 6.62%, both in local currency terms. China's domestic CSI300, the A share index, returned 5.91% in local currency terms (6.50% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.87 against the U.S. dollar.

Asian and emerging market equities were broadly higher in June as a confluence of factors instigated a rise in equity prices. Chinese equities were among the strongest globally as investors found that valuations already reflected the uncertainties surrounding trade. On June 29, President Trump and President Xi agreed to put a hold on the trade war. President Trump promised not to impose additional tariffs for now as well and also discussed allowing U.S. businesses to sell products to Huawei while China agreed to resume purchases of agricultural products from the U.S. In addition, both sides agreed to resume trade negotiations. While markets can interpret the resumption of trade talks as a positive event, more progress is needed to mitigate the uncertainty surrounding trade and tariffs. No definitive agreements have been signed and nothing has been decided that cannot be undone. Skepticism around trade aside, Chinese strong corporate earnings continued, particularly among emerging markets albeit with a moderate slowdown in economic activity. If the Chinese economy continues to slide lower, most market participants expect Chinese policymakers to act swiftly to maintain economic stability.

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


In June, the S&P Bombay Stock Exchange 100 Index returned 0.10% in U.S. dollar terms (-0.85% in local currency terms).

Indian equities were basically flat in June, significantly lagging other Asian and emerging markets after showing downside protection in May. Indian equity prices didn't move much following national elections that saw Prime Minister Narendra Modi win a strong mandate among voters. India's economic data remained steady late in June, but inflation expectations have subdued and this prompted the Indian central bank (RBI) to lower rates by 25 basis points (0.25%) in June. Longer-term interest rates also fell, boosting bond returns and attracting foreign capital back to fixed income markets. Reasonable oil prices have eased pressure on India's current account and the Indian rupee appreciated slightly during the month. On a cautionary note, although earnings growth expectations are among the strongest in the region, Indian equity valuations remain challenging, already reflecting optimism surrounding the election results and the accommodative policies of the RBI.


In June, the Tokyo Stock Price Index returned 2.04% in local currency terms (2.65% in U.S. dollar terms). The yen ended the month at 107.85 against the U.S. dollar.

Japanese equities posted positive results in June but underperformed select developed and Asian markets. Japanese stock valuations already reflect significant trade-related uncertainty and remain some of the most attractive among developed markets. In addition, recent revisions to the Corporate Governance Code have resurrected interest by Japanese companies to lift payouts to shareholders. The result has been significantly higher share buybacks in this fiscal year together with more robust dividend payouts. Both could reach levels not seen since the Global Financial Crisis, which could support return on equity going forward. Going into the third quarter, attention will be focused on the upper house elections in July and definitive implementation of agreed-upon terms resulting from the G-20 U.S.—China talks in Osaka. One metric worth watching is the strength of the yen, which could serve as a headwind to corporate profits if significant strength persists.

South Korea

In June, the Korea Composite Stock Price Index (KOSPI) returned 8.14% in U.S. dollar terms (5.24% in local currency terms). The Korean won rose by 3.13% against the U.S. dollar.

South Korean equities were the strongest in the region in June as trade-related hopes boosted sentiment and investors were attracted to beaten-up stock prices. Tech-heavy South Korean exports have suffered year to date as investors feared the broad reach of the U.S.—China trade dispute would hamper Korean companies. South Korean firms may be subject to second-order effects in terms of their participation in the supply chain of certain China-related exports to the United States. When Presidents Trump and Xi announced their intentions to meet at the G-20, South Korean stocks were given a boost. Recent optimism aside, South Korean corporate earnings have been weak. Stock prices are low but valuations are above five-year averages.

Southeast Asia

In June, the broader MSCI ASEAN Index returned 7.05% in U.S. dollar terms supported by a reprieve in trade tensions. 

Thailand's SET Index was one of the best performers in the Asia-Pacific region, gaining 9.89% in U.S. dollar terms (6.81% in local currency terms) in June on the back of a reduction in political uncertainty, relatively underweight investor positioning in Thai securities and the Thai baht's relative attractiveness as a safe haven, given large FX reserves and a high current account surplus. While former junta leader Prayut Chan-ocha was proclaimed prime minister, his ability to control the Lower House and pass his legislative agenda remains unclear. The new coalition government is likely to maintain the status quo and come up with minor economic stimulus packages to prop up the economy until the next election. Minutes from the latest Bank of Thailand's monetary policy committee meeting noted the weakening condition of the Thai economy and highlighted given the central bank's lack of monetary policy space, fiscal policy had to do the heavy lifting. 

Indonesia's JCI Index returned 4.14% in U.S. dollar terms (2.98% in local currency terms), lifted by an easing monetary policy environment with low and stable inflation and a dovish U.S. Federal Reserve giving policy room for Indonesia's central bank. During the month, Indonesia's Constitutional Court upheld the official election win by President Jokowi and rejected the appeal by the losing candidate, Prabowo Subianto, closing the election saga and allowing normal business to resume. In particular, investment activity and foreign direct investment, which slowed ahead of the election, should begin to pick up in the second half the year as the uncertainty is dispelled. The Indonesian investment promotion agency and the Ministry of Finance also have plans to provide investment incentives, including allowing foreigners more access to basic industry sectors, tax holidays for smaller and medium-size firms and a potential policy known as the reverse Tobin tax to incentivize foreign investors to reinvest profits and expand long-term businesses in Indonesia.
The Philippine PSEi Index gained 2.27% in U.S. dollar terms (0.49% in local currency terms). Equity gains were soft during the month. After the latest inflation reading picked up to 3.2% year over year from 3.0% in the month prior, the central bank held policy rates at 4.50%, contrary to expectations for a cut in interest rates. Other economic data released has indicated steady growth, however, and growth in the second half of the year is expected to pick up with support from the central bank's phased reserve requirement ratio (RRR) reduction. This would be positive for domestic liquidity and credit growth and for the Duterte administration's plans to shift its infrastructure agenda into higher gear. 

Sources: Bloomberg, 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.