Matthews Asia Country Updates

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For the month ending January 2020

China/Hong Kong

In January, the MSCI China Index returned -4.69% and Hong Kong's Hang Seng Index returned -5.25%, both in local currency terms. China's domestic CSI300, the A-share index, returned 0.38% in local currency terms (1.20% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.91 against the U.S. dollar.

Chinese equities were among the worst-hit in January as investors feared an extended fallout from the coronavirus. A longer-than-normal incubation period for the virus, combined with the mass people movement associated with the Chinese New Year, complicated the control of the virus early on. Chinese authorities acted decisively, however, limiting internal travel and controlling the country's borders while working with the World Health Organization to control the outbreak. Nevertheless, a temporary downturn in economic activity was inevitable—driven by the cancellation of travel plans by incoming and outbound tourists, along with severely diminished consumer activity. Manufacturing and production disruption as well as the replenishment of inventories was harder to estimate given there were restrictions imposed on workers to return to factories. Most analysts predicted an economic hit to the region. Equally important, however, was that most agreed that the effects were likely to be temporary.

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


In January, the S&P Bombay Stock Exchange 100 Index returned -1.24% in U.S. dollar terms (-0.77% in local currency terms).

Indian equities were negative but notably outperformed much of the region in January. Indian equities were resilient to negative sentiment surrounding the coronavirus as traders focused on the Modi government's prior policy action to spur growth and domestic demand. The fiscal year 2021 budget was scheduled to be released February 1 and was widely expected to be aexpansionary, allowing for a moderate increase in the fiscal deficit to support growth. The new budget called for a potential cut in personal income taxes, an increase in government expenditure, abolishing the dividend distribution tax and easing limits on foreign ownership of local bonds. These government actions, along with prior policy announcements last September, we believe should stabilize economic growth and earnings from a relatively low base—allowing equities to potentially have a more-favorable backdrop than experienced in 2019. 


In January, the Tokyo Stock Price Index returned -2.47% in local currency terms (-2.05% in U.S. dollar terms). The yen ended the month at 108.35 against the U.S. dollar.

Japanese equities posted weaker results in January but outperformed many other countries in the region. Early in the month, Japan benefited from de-escalating trade tensions and a weakening yen, only to reverse course as worries spread regarding the coronavirus. Notwithstanding deeper negative effects pertaining to the virus, consensus 2020 earnings and the current level of stock buybacks could combine for a reasonably constructive backdrop for Japanese equities. Risks to the outlook include a scenario whereby the global and Japanese economies continue to move sideways and inflation still falls well short of the Bank of Japan's 2% target. This could reinforce the need for stimulative policies in the form of lower rates (potentially negative), increased fiscal spending or a rise in ETF purchases.

South Korea

In January, the Korea Composite Stock Price Index (KOSPI) returned -5.20% in U.S. dollar terms (-1.91% in local currency terms). The Korean won declined by -3.01% against the U.S. dollar.

South Korean equities were weaker along with other regional markets. Early-year optimism surrounding the U.S.–China trade resolution faded quickly as investors weighed potential negative spillover of the coronavirus into slower trade, tourism and demand for South Korean products in the short term. Analysts expected a first-quarter hit to South Korean economic growth but most did not believe the negative impact would be enough to spur the Bank of Korea (BOK) to make a pre-emptive cut in rates. Two primary drivers could still provide South Korea with a tailwind going into 2020. First, South Korea should benefit from the expected rise in DRAM prices and overall cyclical reflation if emerging market and Asia GDP growth stabilizes as the market expects. Secondly, South Korea's corporate earnings were some of Asia's worst performers in 2019. This makes valuations, in our opinion, relatively attractive and the prospect of earnings growth from a low base a good possibility.

Southeast Asia

During January, the broader MSCI ASEAN Index fell 5.09% in U.S. dollar terms. Markets gave back early gains on the phase-one trade deal between the U.S. and China as concerns over the impact of the coronavirus set in. Southeast Asian markets all showed negative returns in U.S. dollar and local currency terms, with the Philippine PSEi Index underperforming the most in U.S. dollar terms (-8.22%) as foreign flows exited on concerns over planned revisions of private water concessions. The Thailand SET index also fell -7.96% in U.S. dollar terms, with the fall in the index amplified by Thai baht weakness against the U.S. dollar. 

In January, Indonesia's JCI Index returned -4.79% (-5.68% in local currency terms). This followed a strong 6.44% gain (4.91% in local currency terms) in December 2019 on the expectation of a U.S.–China trade accord. A cause for cheer was a commitment by the United Arab Emirates of US$25 billion in investment into construction of Indonesia's new capital in Kalimantan province.

Bank Indonesia (BI) kept the seven-day reverse repo rate unchanged at 5.00% for the third-consecutive month at its January policy meeting, in line with market expectations. But BI remained dovish with the bias on monetary policy remaining accommodative, keeping the door open for further easing. BI also conveyed that it is comfortable with currency appreciation, with a stronger Indonesian rupiah said to have a positive impact on growth momentum.

Headline inflation rose slightly to 2.68% in January 2020 from a revised 2.59% in December 2019, as the CPI was newly rebased to 2018. Core inflation was at 2.88% year-over-year (from 3.02% in December 2019). The rebasing of CPI is likely to depress near-term inflation expectations, boosting Indonesia's real policy rate and providing further room to ease monetary policy.

In January, the Philippines PSEi Index returned -8.22% (-7.86% in local currency terms). The Philippines continued to lag the rest of Southeast Asia, despite relatively robust growth as market concerns developed over the government‹s renegotiation of water contracts with private-sector concessionaires. 

Headline inflation rose by 2.94% year-over-year in January, higher than consensus expectations (previous: 2.52%). This was due to an acceleration in food, alcohol and tobacco prices owing to scheduled excise tax increases as well as the Taal Volcano eruption. But inflation is likely to remain moderate and within the central bank target range as minimum-wage hikes are expected to remain moderate while temporary food inflation is offset by weaker energy prices.

In January, Malaysia's central bank Bank Negara Malaysia cuts its policy rate unexpectedly by 25 basis points to 2.75%, after having paused over the three previous policy meetings. BNM said the decision was a pre-emptive measure to secure an improving growth trajectory, likely as domestic demand remained subdued while external demand had yet to recover following the phase-one U.S.–China trade accord.

Sources: Bloomberg; CEIC; Bank of Japan

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.