Matthews Asia
  • Contact Us  |  Careers  |  Change Site:
  • Submit

Matthews Asia Country Updates

For the month ending May 2017

China/Hong Kong

In May, the MSCI China Index returned 5.48% and Hong Kong's Hang Seng Index returned 4.75%, both in local currency terms. China's domestic CSI300, the A share index, returned 1.78% in local currency terms (2.91% in U.S. dollar terms).
The stable renminbi (RMB) exchange rate—which ended the month at 6.82 against the U.S. dollar—coupled with moderately higher interest rates and increased capital account controls have stabilized China’s foreign exchange reserves and outflow pressure.
China has been one of the best-performing emerging markets year to date despite being downgraded one notch by ratings agency Moody’s from Aa3 to A1. China’s manufacturing PMI for small enterprises rose to 51 in May, the first time it has been above expansionary territory since August 2014. Non-manufacturing PMI also accelerated to 54.5. Despite the policy tightening in the real estate market, new home sales still rose 13% in the first four months, and residential real estate investment increased by 11% YoY.
Looking forward, we anticipate further slowing of reflationary pressures (producer price index seems to have peaked) and continued government-encouraged financial deleveraging – neither of which should pose a substantial risk to the economy in 2017, but may dampen sentiment in the near term.


In May, the S&P Bombay Stock Exchange 100 Index returned 2.73% in U.S. dollar terms (2.35% in local currency terms).

Indian stocks gained in May but lagged behind several other major Asian markets during the month. Strong year-to-date returns reflect the market’s anticipation of higher earnings, subdued inflationary pressures and relaxed monetary policy. Consumer price index inflation is tracking below the central bank target of 4.5% and the India Meteorological Department (IMD) released a preliminary long-range forecast predicting “normal” monsoon rainfall for 2017. If realized, a healthy monsoon should act to limit inflationary pressures, allowing the central bank to resist raising rates aggressively later this year. Recent economic growth data have been moderately disappointing and the implementation of the Goods and Services Tax is set to take place later this summer—both of which could be sources of uncertainty for the market. Even though locals and foreigners alike seem to be embracing the first three years of the Prime Minister Narendra Modi’s government, Indian stock valuations are challenging and have priced in positive sentiment. Further increases in stock prices will need to be driven by corporate fundamentals and earnings.


In May, the Tokyo Stock Price Index returned 2.39% in local currency terms (3.09% in U.S. dollar terms). The yen ended the month at 110.78 against the U.S. dollar.

Japanese stocks posted solid gains in May and are up over 8.8% year to date. Japan’s macro environment continues to be favorable, with GDP growth revised upward as domestic demand and consumption continue to track higher. Japanese exports, although slowing slightly, are benefiting from a fairly valued Japanese yen. Domestically oriented businesses are performing well as wages continue to grind higher and the labor market continues to tighten. The jobs/applicants ratio rose to 1.48, beating consensus and registering the highest level since February 1974. Companies focused on selling their products to broader Asia are performing well due to a broad uptick in EM/Asian sentiment and economic growth. Political stability is entrenched as the Abe government was voted to extend the LDP Presidency to three three-year terms (from two three-year terms) so that Prime Minister Shinzo Abe can continue at the helm through September 2021.

South Korea

In May, the Korea Composite Stock Price Index (KOSPI) returned 8.04% in U.S. dollar terms (6.44% in local currency terms), posting the strongest returns in the region. The Korean won rose by 1.61% against the U.S. dollar.

Newly elected President Moon Jae-in has pledged to focus on job creation and income inequality in addition to being a strong advocate for higher public spending and faster economic growth. President Moon also favors corporate governance reform in an effort to increase the transparency of ownership structure in big Chaebol businesses. Investors are hopeful that corporate governance reform could unlock value in many businesses through higher dividend payouts and fewer related party transactions. Market sentiment is running high in Korea, but the reality is that President Moon’s aggressive agenda could be watered down—especially in the area of fiscal stimulus and government spending.

Southeast Asia

In May, markets were positive across all ASEAN markets, the overall MSCI ASEAN Index gained 2.49%. The Philippines' Stock Exchange PSEi Index was the strongest performer, increasing 2.58% in local currency terms (3.06% in U.S. dollar terms). Singapore's Straits Times Index (STI) gained 1.90% (and 2.91% in U.S. dollar terms). Indonesia's Jakarta Composite Index (JCI) was 1.70% higher (and 1.83% in U.S. dollar terms), Malaysia's KLCI and the Thai Set Index trailed with 0.52% and 0.12% respectively (1.70% and 1.74% in U.S. dollar terms).
Indonesia's JCI continued to find higher ground in May as signs of an earnings upgrade cycle started to emerge. Nationally, real GDP growth for the first quarter showed growth of 5% YoY, driven by robust consumption and greater contribution from positive net exports. Optimism and broad asset class performance was further lifted by S&P's upgrade of Indonesia's sovereign debt to investment grade status. The ratings upgrade on the back of Indonesia's improved fiscal position is expected to have longer-term positive implications, including widening the foreign investor base and triggering more inflows into the country. For the remainder of the year, government spending is also expected to rise, which may help to accelerate Indonesia's growth toward its official target growth rate of 5.3% to 5.4%.
The Philippines PSEi inched to its all-time high. First quarter GDP growth came in slightly below market expectations but continued to grow at a healthy 6.4% YoY pace. The overall growth picture was balanced between domestic and external demand, more so than in previous quarters. Notably, exports surged in line with a recovery of electronics demand and private consumption showed growth with continuing strong employment take-up and overseas workers remittances suggesting no major impediments to achieve 6.5% GDP growth for the full year. 

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 International Capital Management, LLC (“Matthews Asia”) and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.