For the Month Ending May 2019

China/Hong Kong

In May, the MSCI China Index returned -13.16% and Hong Kong's Hang Seng Index returned -8.46%, both in local currency terms. China's domestic CSI300, the A share index, returned -5.97% in local currency terms (-8.29% in U.S. dollar terms). The renminbi (RMB), ended the month at 6.91 against the U.S. dollar.

Chinese equities suffered as U.S.—China trade negotiations were seemingly derailed in early May and both sides escalated their rhetoric, bringing significant uncertainty about the timing of a resolution. Implications of higher tariffs on a broad set of consumer goods as well as a potential disruption to supply chains pressured most global equity markets, emerging and developed alike. Investors feared the chances of a resolution in the short term were fading and that the best hope is for negotiations to restart when Trump and Xi meet at the G-20 summit in late June. In the meantime, investors worried about the long-term implications of unresolved trade issues, including a slowdown of the world's largest economies and knock-on effects to company earnings. An optimist could argue that the market has already discounted significant uncertainty and that Chinese policymakers stand ready to further stimulate their economy if need be—which should minimize the tail risk of a meaningful negative economic shock to China.


In May, the S&P Bombay Stock Exchange 100 Index returned 2.00% in U.S. dollar terms (1.99% in local currency terms).

Indian equities were flat in May, significantly outperforming other Asian and emerging markets. National election results were announced May 23 and the ruling National Democratic Alliance (NDA) led by Prime Minister Narendra Modi won a strong mandate. In fact, the NDA won 353 of the 543 available seats, outperforming even the most-optimistic estimates and beating its results in the 2014 national elections. India remained outside much of the tariff controversy and could benefit from movement of Chinese manufacturing. Lower oil prices eased pressure on India's current account and the lack of inflationary pressure created room for the Reserve Bank of India (RBI) to be accommodative if need be. On a cautionary note, Indian equity valuations already reflected optimism surrounding the election results. In addition, recent economic results highlighted a slowing pace of GDP growth, especially in private-sector investment.


In May, the Tokyo Stock Price Index returned -5.55% in local currency terms (-2.89% in U.S. dollar terms). The yen ended the month at 108.29 against the U.S. dollar.

Japanese equities suffered alongside most Asian markets due to escalating U.S.—China trade tensions, especially in relation to a talked-about increase in auto tariffs—with a potential direct impact on Japanese dealers. Other areas of concern included the planned value-added tax (VAT) hike due to take effect in October, select earnings disappointments and the threat of slower global GDP growth. That said, Japanese shares already reflected a reasonable amount of pessimism, especially in terms of price-to-earnings (P/E) and price-to-book (P/B) ratios. Interestingly, should the trend continue, announced stock buybacks and dividend payouts could reach levels not seen since the Global Financial Crisis, which could support return on equity (ROEs) going forward.