Matthews Asia Country Updates: China, India, Japan, Korea & Southeast Asia

Matthews Asia Country Updates: China, India, Japan, Korea & Southeast Asia

Matthews Asia Country Updates: China, India, Japan, Korea & Southeast Asia

China / Hong Kong

In December, the MSCI China Index returned -1.34%. Hong Kong’s Hang Seng Index returned -0.36% (-0.33% in U.S. dollar terms) and China’s domestic CSI300, the A share index, returned 4.63% (3.18% in U.S. dollar terms). China’s currency, the renminbi (RMB), ended the year at 6.49 against the U.S. dollar, a devaluation of 5.8% since the end of 2014. The real effective exchange rate was still up 4.5% year-to-date through the end of November, and was up by 57% from June 2005, when China began to reform its exchange rate mechanism.

Strong growth in real (inflation-adjusted) retail sales over the last several months demonstrate that just as there was little positive wealth effect from the market’s steep rise, there is unlikely to be a significant negative wealth effect on the way down. In November, new home sales, on a square meter-basis, rose 7.8% year-on-year, after rising 5.9% in October, and compared to a fall of 13.3% in November 2014. Online retail sales of goods rose 33% year-on-year through November. Boosted by a purchase tax reduction, passenger car sales rose 24% year-on-year in November.

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In December, India’s market had marginally positive returns despite lacking progress in economic reforms during the winter session of Parliament and despite mixed economic data. Index returns may suggest that investors expected faster pace of earnings growth in the quarter ending December. The S&P Bombay Stock Exchange 100 Index returned 0.19% (0.74% in U.S dollar terms), led by positive returns in health care, energy, and information technology.

Certain economic indicators and publicly reported comments from consumer discretionary companies suggest that demand during the Diwali holiday season was even higher-than-expected. Further, demand associated with Diwali this year was concentrated in last three months of 2015 as compared to last year when it was split between the last two quarters of 2014.

The Indian Parliament’s winter session ended without much movement over the Goods & Services Tax (GST) bill. Despite efforts from Indian President Pranab Mukherjee and from Prime Minister Narendra Modi’s BJP party to create consensus, the Congress-led opposition continued to obstruct the normal parliamentary functions.

The index of industrial production (IIP) data released in December, for the month of October, rose 9.8%, marking the fastest growth reported in last five years. Inflation, measured by the consumer price index, continued to accelerate and was reported at 5.41% in November as compared to 5.0% for the previous month.


In December, the Tokyo Stock Price Index declined -1.97% (+0.91% in U.S. dollar terms). Telecommunications, utilities and health care were the best performing sectors while information technology, consumer discretionary and industrials were the largest underperformers. The yen strengthened 2.09% versus the U.S. dollar.

Macroeconomic data released during the month was largely disappointing. November retail sales fell 1% from the previous year while household spending was down 2.9% over the same period, underlining low consumer confidence. Factory output figures also fell short of expectations, dropping 1% in November amid weak demand from emerging markets.

Headline employment figures came in weaker-than-expected with unemployment rising from 3.1% to 3.3% in November. However, the job-offers-to-applicants ratio suggested continued tightening in the job market as it reached its highest level (1.25) in over 20 years.

The consumer price index, excluding fresh food and energy, rose by 0.9% in November. This rate remains comfortably shy of the longer term 2% inflation target and prompted the Bank of Japan to unexpectedly expand the scope of its stimulus program to include longer-term government bonds and exchange-traded funds.


During the month, the Korea Composite Stock Price Index declined -1.52% in local currency terms and -3.13% in U.S. dollar terms. The Korean won depreciated -1.48% against the U.S. dollar.

December trade data reflected the pattern seen throughout the year—a large trade surplus driven by sizable import declines that outpaced declining exports. Exports fell 13.8% while imports dropped 19.2%, resulting in US$7.2 billion trade surplus. Exports by volume grew slightly at 2.1% compared to a year ago.

While trade growth remained sluggish, Korea’s consumer sentiment index has steadily improved. Tourism data for November showed ongoing recovery with the number of inbound and outbound tourists up 3% and 26% respectively.

During the month, the Bank of Korea held its policy rate steady at 1.5%, and Monetary Policy Committee members have expressed concerns over weak trade data and economic growth outlook. However, officials have appeared content with the pace of domestic consumption and the financial stability of the overall economy.

Southeast Asia

In November, the MSCI South East Asia Index returned 0.15% in U.S. dollar terms. Notably, the Jakarta Stock Exchange Composite Index (JCI) returned 3.30 % in local currency terms (3.15% in U.S. dollar terms) and the Stock Exchange of Thailand SET Index fell -5.27 % in local currency terms (-5.90% in U.S. dollar terms).

Bank Indonesia held its overnight rate at 7.5%. The central bank signalled that it would be open to cutting rates in 2016 due to supportive inflation (below 3%) and a stable current account deficit (2% of GDP) in 2015. The central bank signed a bilateral local currency swap agreement with the Reserve Bank of Australia for the exchange up to US$7.14 billion. This agreement ensures that trade between the two countries can continue to be settled in local currency during times of financial stress.

In Thailand, headline inflation moderated to -0.9% year-over-year (YoY) in December from -1.0% YoY in November.  Headline inflation is expected to be muted due to lower domestic demand and lower energy prices. In a bid to stimulate the economy, Thailand’s cabinet approved the launch of the country’s first infrastructure fund, “Thailand Future Fund,” with an expected initial capital of 100 billion Thai baht (US$2.78 billion). Foreign investors were net sellers of equities of US$902 million in December, leading to a significant outflow of US$4.4 billion for the year 2015. The Bank of Thailand has announced expectations for GDP to grow by 3.5% in 2016 due to higher public sector spending and private consumption.

December 2015

Country Updates: China, India, Japan, Korea & Southeast Asia by Matthews Asia

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