Matthews Asia Country Updates

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For the month ending February 2020

China/Hong Kong

In February, the MSCI China Index returned 2.59% and Hong Kong's Hang Seng Index returned -1.60%, both in local currency terms. China's domestic CSI300, the A-share index, returned -2.56% in local currency terms (-3.74% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.99 against the U.S. dollar.

Chinese equities were down but among the better performers within emerging markets during February. We believe the slowdown in the percentage rise in new virus cases along with comprehensive policy action helped stabilize sentiment within Chinese markets, especially A-shares. Chinese authorities implemented policy actions meant to assist small and medium-size enterprises, including an increase in loan quotas, a lowering of borrowing rates, a delay in loan repayments and VAT tax relief. Nevertheless, a temporary downturn in economic activity appeared likely—driven by the cancellation of travel plans by incoming and outbound tourists along with severely diminished consumer activity. Manufacturing and production disruption was substantial and analysts now expect a contraction in economic activity in the first quarter with potential negative effects lingering in the second quarter. Although most analysts predict an economic hit to the region, they also agree that the effects are likely to be temporary.

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


In February, the S&P Bombay Stock Exchange 100 Index returned -6.79% in U.S. dollar terms (-5.61% in local currency terms).

Indian equities were down substantially in February but in-line with broader emerging markets. Consistent with broader indices, the more-cyclical sectors, such as energy, underperformed less-cyclical businesses such as communication services and consumer staples. India's central bank (RBI) kept rates on hold after its February 6 meeting, opting instead to rely on prior stimulative policy actions to bolster its economy. Economic growth is expected to underperform early-year estimates amid a general slowdown in the region, especially in China. With this backdrop, it would be reasonable to expect India to signal further easing bias into the second quarter.


In February, the Tokyo Stock Price Index returned -8.69% in local currency terms (-8.47% in U.S. dollar terms). The yen ended the month at 107.89 against the U.S. dollar.

Japanese equities were among the weakest in the region during February. Contributing factors included profit-taking following a strong 2019 and negative sentiment when Japan became a focal point of the coronavirus contagion outside of China. Fear was reflected on the streets of Tokyo as foot traffic was noticeably reduced, schools were closed through April and even Disneyland Tokyo was closed for two weeks. Japanese small caps underperformed large caps and IT and communication services outperformed more cyclical sectors such as real estate, materials and energy. 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 in which the global and Japanese economies suffer for longer, meaning that demand disruption extends deeper than two quarters of output. Such a scenario would 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 February, the Korea Composite Stock Price Index (KOSPI) returned -7.13% in U.S. dollar terms (-6.50% in local currency terms). The Korean won declined by -1.89% against the U.S. dollar.

South Korean equities were weaker in February 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. In our opinion, two primary drivers could still provide South Korea with a tailwind in 2020. First, South Korea should likely 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, making valuations relatively attractive and the prospect of earnings growth from a low base a good possibility.

Southeast Asia

During February, the broader MSCI ASEAN Index fell -9.00% in U.S. dollar terms. Markets gave back early gains on the U.S.—China “phase one” trade deal as concerns deepened over the impact of the COVID-19 coronavirus. Southeast Asian markets all showed negative returns in U.S. dollar and local currency terms, with the Thailand SET Index underperforming the most in U.S. dollar terms (-11.98%).  The SET was stricken by investor concerns over weakening economic and earnings growth prospects. Thailand was viewed as among the most affected in Asia by the coronavirus, given its heavy reliance on tourism against a backdrop of slow government spending. The Indonesia JCI index fell -11.38% in U.S. dollar terms. The fall in the index was amplified by the Indonesian rupiah's weakness against the U.S. dollar.
In February, Indonesia's JCI Index returned -11.38% (-7.65% in local currency terms). This followed a weak performance in January as coronavirus fears dragged down the index despite no reported infections in Indonesia. However, progress was made on submitting the important labor reform and tax bills to the Parliament. Passage of these bills is expected to increase Indonesia's attractiveness as an investment destination, with increased FDI flows helping to bolster the country's external account.

Responding to COVID-19 concerns, Bank Indonesia (BI) cut the seven-day reverse repo rate by 25 basis points to 4.75% after a three-month hiatus. BI also eased macroprudential regulations, consistent with its focus on improving domestic liquidity and transmission. Although Indonesia has among the lowest regional direct exposures to China via tourism and trade, Bank Indonesia noted that the COVID-19 outbreak will impact current account flows, with a knock-on impact on domestic activity. As such, BI reduced its 2020 growth forecast range by 0.1% to 5.0%—5.4% year-over-year from 5.1%—5.5% year-over-year. 

Indonesia's headline inflation rose slightly to 3.0% year-over-year in February from 2.68% in January, mainly due to higher food prices. Annually, core inflation was recorded at 2.76% year-over-year compared with 2.88% year-over-year in the previous period. The food price increase was narrowly focused on garlic and chilies, aside from which the trend for food inflation remained broadly benign. This should likely, together with easing energy prices, continue to keep a lid on overall headline inflation.

In February, the Philippines PSEi Index returned -5.88% (-5.71% in local currency terms). The index fell to its lowest level since 2016 as market concerns developed over government renegotiation of contracts with private sector concessionaires, despite the Philippines pledging to cut interest rates. The Philippine peso was one of the few currencies to advance against the U.S. dollar. 

The Philippines' headline inflation rose just 2.6% year-over-year in February, reversing the trend of accelerating price gains seen in previous months (January: 2.9%). This was due to sequential declines in food and oil prices as the COVID-19 outbreak put downward pressure on most global commodities. This suggests that benign inflation trends will persist in coming months, allowing policymakers free rein to ease both monetary and fiscal policies to support the economy.

Sources: Bloomberg; CEIC

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.