Matthews Asia April 2016 Country Updates: China, India, Japan, Korea & Southeast Asia

Matthews Asia April 2016 Country Updates: China, India, Japan, Korea & Southeast Asia

Matthews Asia April 2016 Country Updates: China, India, Japan, Korea & Southeast Asia

China/Hong Kong

In April, the MSCI China Index returned -0.19% in local currency terms. Hong Kong’s Hang Seng Index returned 1.46% in local currency terms (1.44% in U.S. dollar terms) and China’s domestic CSI300, the A share index, returned -1.84% (-2.17% in U.S. dollar terms). China’s currency, the renminbi (RMB), ended the month at 6.48 against the U.S. dollar. The real effective exchange rate was down 1% year-to-date through the end of March, but was up by 54% from June 2005, when China began to reform its exchange rate mechanism.

In the first three months of 2016, new home sales, on a square meter-basis, rose 35.6% year-on-year, after rising 6.9% for the full year of 2015, and compared to a fall of 9.8% a year ago. Online retail sales of goods rose 25.9% year-on-year through March.

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China’s rebalancing of its economy creates opportunities for investors to focus on the new growth drivers. In the first quarter of 2016, services and consumption accounted for 57% of China’s GDP, up from just over half in 2015, and 41% in 2005.


Indian markets were stable in April after the Reserve Bank of India (RBI) further loosened monetary policy by again reducing repo rates. The S&P BSE 100 Index returned 1.3% in U.S. dollar terms (1.8% in local currency terms) driven by gains in financials, consumer discretionary, materials, and health care sector.

The central bank reduced the repo rates by 25 basis points (0.25%) to 6.5%. RBI Governor Raghuram Rajan cited moderating inflation and the government’s adherence to fiscal prudence as primary reasons for proceeding with a rate cut after keeping it on hold over the previous six months.

Economic data released in April seemed to bode well for future economic prospects. India’s consumer price index was reported at 4.83% for the month of March as compared to 5.26% for February. The index of industrial production (IIP) reported growth of 2% for the month of February after remaining in negative growth territory over the previous three months. IIP was boosted by an increase in electricity generation and mining output.

In other economic news, the Indian Meteorological Department released a favorable forecast for monsoon rainfall for the 2016-17 fiscal year. After two consecutive years of below-normal rainfall, a good monsoon should lead to more bountiful agricultural output, and thus help ease food inflation further.

Corporations recently started reporting earnings for the quarter ending March 2016. Companies and banks focused on retail consumers have continued to deliver good results. Private sector banks focused on corporate lending highlighted challenges emanating from stressed assets on their balance sheets. While the level of stressed assets for these banks may have peaked, provisioning requirements related to these assets are likely to remain high going forward.


In April, the Tokyo Stock Price Index declined -0.49% in local currency terms (3.33% in U.S. dollar terms). At the sector level, energy, telecommunications and materials were the best performers while utilities, consumer discretionary and consumer staples stocks were the largest underperformers. The yen strengthened 5.45% versus the U.S. dollar.

Macroeconomic data was mixed with employment metrics continuing to be strong. The unemployment rate dropped a further 0.1% to 3.2%, and the job-offers-to-applicant ratio reached a new multi-decade high of 1.3x, marginally higher than both the previous month and expectations. However, average monthly household spending was weaker than expected, dropping 5.3% from the previous year, reversing more positive data on this front last month.

Inflation metrics have become increasingly subdued as exemplified by the consumer price index, excluding fresh food, which turned negative for the first time in several months. The “core-core” CPI, which excludes food and energy from its calculation, slowed to 0.7%. This heightened expectations of increased stimulus measures from the Bank of Japan as it looks to reach its long-term 2% inflation target. Despite this pressure, monetary policy remained unchanged at the end of the month.


During the month, the Korea Composite Stock Price Index (KOSPI) returned -0.08% in local currency terms and 0.44% in U.S. dollar terms. The Korean won depreciated -0.35% against the U.S. dollar.

South Korea’s trade surplus rose to US$8.4 billion in March due to rapidly declining imports that fell 17.5% year-over-year. While exports also declined 8.0%, volume showed a turnaround, growing 5.5% compared to a year ago.

On April 13, general elections were held for 300 National Assembly member seats that carry four-year terms. Contrary to expectations, the ruling party lost by a wide margin. Local media reported that voters demonstrated their disappointment over a wide variety of economic and political issues, including lackluster economic reform targeting chaebol (large conglomerate) families and deteriorated political freedom. The opposition Minjoo Party, which has campaigned for “economic democracy” as a key election platform, secured the most seats—winning 123. President Park Geun-hye’s party followed with only 122 seats. It is expected that both opposition parties may take the lead with certain stalled agendas such as a restructuring of key troubled companies in the shipping and ship building industries.

Southeast Asia

In April, the MSCI South East Asia Index returned -0.89% in U.S. dollar terms. Notably, Thailand’s SET index returned -0.22% in local currency terms (0.31% in U.S. dollar terms) and Malaysia’s KLCI Composite Index fell -2.61 % (-3.67% in U.S. dollar terms).

The Bank of Thailand (BOT) reported that household debt as a percentage of GDP rose again in 4Q15 from 80.8% in 3Q15 to 81.5%. The increase highlights that Thailand has yet to start the deleveraging process following the 2008–13 consumer lending boom. A survey by the University of the Thai Chamber of Commerce (UTCC) showed that consumer confidence plunged to a five-month low in March. Effects of a prolonged drought on the agriculture sector and shrinking purchasing power, particularly among middle-income earners have impacted confidence.

In Malaysia, long-serving senior deputy governor Muhammad Ibrahim has been appointed as the new governor of the country’s central bank. Ibrahim’s appointment was welcomed by the market and is expected to continue the policies adopted by the well-respected outgoing governor Dr. Zeti Aziz. The saga around the investment firm 1Malaysia Development Bhd (1MDB) has continued as it failed to pay a US$50.3 million coupon. Rating agency Moody’s warned that the 1MDB default presented a contingent liability risk to the government as it may be likely that at least some of 1MDB’s debt might be assumed by the Malaysian state.

April 2016

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