County Updates: For the month ending October 2018

China/Hong Kong

In October, the MSCI China Index returned -11.30% and Hong Kong's Hang Seng Index returned -9.97%, both in local currency terms. China's domestic CSI300, the A share index, returned -8.26% in local currency terms (-9.67% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.98 against the U.S. dollar (USD).

Especially hard hit among China shares in October were consumer-related businesses with exposure to a perceived slowdown of the Chinese economy. U.S.—China trade tensions escalated early in the month only to diminish in the last days of October as news broke that President Trump and President Xi spoke on the phone, which spurred speculation that trade talks could progress during the G20 meetings to be held in late November in Buenos Aires. Economic data disappointed investors in October and threats of a 25% tariff prompted media reports of a “Chinese slowdown.” The Chinese government has been mildly proactive in communicating its willingness to provide economic stimulus if needed. It has stressed the use of lower taxes as opposed to large government spending programs and has continued to resist the notion of a significantly weaker RMB to offset higher tariffs on exports to the U.S. The MSCI China Index was down almost 30% (from end of January to end of October) from year-to-date highs in January and there seems to be some “selling fatigue” at this level of index valuation. For more on China, please read the latest issue of Sinology.


In October, the S&P Bombay Stock Exchange 100 Index returned -6.17% in U.S. dollar terms (-4.21% in local currency terms).

India's equity market was weak in October, although slightly better than September in USD terms. A hangover from macro headwinds continued in October with a slightly weaker Indian rupee along with increased inflationary pressures convincing market participants that India's central bank (RBI) would orchestrate an economic slowdown via higher policy rates. That said, one of the major headwinds for India's current account diminished in October as oil prices fell almost US$10 during the month. In addition, the fall of equity prices, especially among small-cap stocks, has made overall market valuations much more reasonably priced and closer to long-term averages. Local mutual fund inflows bounced in October while foreigners were net sellers.


In October, the Tokyo Stock Price Index returned -9.41% in local currency terms (-9.05% in U.S. dollar terms). The yen ended the month at 112.94 against the U.S. dollar.

Japanese shares were some of the weakest in the region during October after posting good results in September. Trade tensions between the U.S. and China exacerbated fears that China and the rest of the global economy could slow. Therefore, growth stocks in Japan, especially those that sell into China, were some of the hardest hit. In addition, quality, smaller-cap securities that outperformed earlier in the year were underperformers. Earnings season is pointing to reasonable index aggregate earnings growth in the mid-single digits—a bit ahead of early year expectations positively influenced by a competitive Japanese yen, relatively robust domestic demand and sustained capital spending.