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

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

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

China/Hong Kong

In May, the MSCI China Index returned -0.61%. Hong Kong’s Hang Seng Index returned -0.50% in local currency terms (-0.66% in U.S. dollar terms) and China’s domestic CSI300, the A share index, returned 0.62% in local currency terms (-1.03% in U.S. dollar terms). China’s currency, the renminbi (RMB), ended the month at 6.59 against the U.S. dollar. The real effective exchange rate was down 3% year-to-date through the end of April, but was up by 51% from June 2005, when China began to reform its exchange rate mechanism.

Over the first four months of 2016, new home sales, on a square meter-basis, rose 38.8% year-on-year, after rising 6.9% for the full year of 2015, and compared to a fall of 5% a year ago. Online retail sales of goods rose 25.6% year-on-year through April.

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China’s rebalancing of its economy creates opportunities for investors to focus on its new growth drivers that are now the largest components of GDP, consumption and services. In the first quarter of 2016, final consumption contributed 84.7% of the GDP growth, up from 64.2% a year ago and 73.9% two years ago.


In May, the S&P Bombay Stock Exchange 100 Index gained 3.93% in local currency (2.85% in U.S. dollars) compared to 2.76% year-to-date (1.39% in U.S. dollars), amid mixed fundamentals. On the positive side, India’s GDP growth for the fiscal year (FY) ending in March 2016 accelerated to 7.6%, compared to 7.2% for the previous year, and the fiscal deficit declined to 3.9% for FY16, compared to 4.1% in FY15.

India’s index of industrial production (IIP), however, decelerated to a 0.1% year-over-year rate in March versus 2% in February. India’s export figures were even worse—falling in dollar terms for almost 17 months. Only part of this can be explained by falling oil prices. Inflation also accelerated to 5.4% in April, compared to an average of 4.9% for FY16. Oil and metal prices had been low until recently, which temporarily masked India’s food inflation problems, but that seems to have changed for the worse. Thankfully, rainfall is expected to be normal this year, which might be a mitigating factor. The foreign portfolio flows have also been positive for the month at US$380 million, even if decelerating on a monthly basis, compared to US$2.35 billion year-to-date.

Corporate earnings results were generally better-than-expected during the most recent quarter, with the exception of the banking sector which has been plagued by rising credit costs, especially pertaining to public sector banks. The government has proposed a variety of incremental measures, including power reforms, rising public investments in infrastructure, and banking reforms. However, there do not appear to be any groundbreaking reforms for the moment, and there has also been speculation that the current central bank governor may not continue for a second term. That said, India’s central bank has been able to manage currency volatility well, given that the rupee has largely been stable this year.


In May, the Tokyo Stock Price Index increased 2.93% in local currency terms (0.75% in U.S. dollar terms). At the sector level, construction, food and transport were the best performers while rubber, oil, coal, iron and steel stocks were the largest underperformers. The yen fell 4% versus the U.S. dollar.

The unemployment rate held at 3.2% in April 2016, the lowest in over two decades and the job-offers-to-applicant ratio remained at the multi-decade high of 1.3x. Average monthly household spending grew nominally stronger, rising 0.4% year over year in real terms.

Inflation metrics continue to be subdued as exemplified by the consumer price index, excluding fresh food, which remained negative. The “core-core” CPI, which excludes food and energy from its calculation, slowed to 0.5%, a further decline from the prior month. The major news for the month was a delay in an increase in the sales tax until 2019, which is perhaps a political move to support households ahead of upcoming Upper House elections slated for this summer.


During the month, the Korea Composite Stock Price Index (KOSPI) returned -0.54% in local currency terms and -4.11% in U.S. dollar terms. The Korean won depreciated -4.4% against the U.S. dollar.

South Korea’s trade surplus rose to US$7.1 billion in May as imports fell 9.3% year-over-year while exports declined 6.0%. Export volume, however, continued to rise, growing 2.7% compared to a year ago. While key export items such as smartphones, IT products, and industrial products declined, consumer products such as cosmetics, pharmaceutical products and fashion items showed strong growth thanks to strong appeal from Asian consumers, growing at 60%, 25%, and 9%, respectively.

Korea’s central bank maintained its policy rate at 1.5% based on positive sentiment over the steady growth in domestic consumption and stabilizing household debt and trade figures.

Southeast Asia

In May, the MSCI South East Asia Index returned -3.39% in U.S. dollar terms. Notably, Philippines Stock Exchange PSEi index returned 3.38% in local currency terms (3.39% in U.S. dollar terms) and Malaysia’s KLCI Composite Index fell -2.79 % in local currency terms (-7.40% in U.S. dollar terms).

The Philippines elected Rodrigo Duterte, a maverick former mayor, as president. His win was clinched with a historically high majority, indicating widespread disappointment with the traditional political elite’s handling of long-standing issues such as poverty, corruption and law and order. Separately, social activist Leni Robredo was elected as vice president in a tightly fought race. The new president unveiled his new cabinet of mainly left-leaning political figures, but his economic policy framework remains uncertain. Thus far, the president has promised to increase infrastructure investment, ease business and lift restrictive foreign investment laws.

Elsewhere, the decline in Malaysia’s equity market was primarily driven by a reduction in the country’s weighting in the MSCI Emerging Markets Index from 3.43% to 3.09%. GDP growth for the first quarter of 2016 eased to its slowest pace since 2009 to 4.2%, though still outperformed market expectations of 4%, driven by strong domestic demand. The government lifted a freeze on foreign workers in four industries—construction, furniture, manufacturing and in the plantation sector. These industries have been facing acute labor shortages. It is expected that the hiring freeze will also be lifted for other industries as the government sets up a more transparent system for the hiring of foreign workers.

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