Vietnam stocks are not among the top fastest growing
Asian markets are set for a volatile year in 2023, with inflation, rising interest rates and China's sluggish recovery dragging down last year's growth.
Japan's Nikkei 225 is the region's top performer in 2023, gaining about 28% last year, according to data from Refinitiv. Japanese stocks have been supported by improving earnings and growing optimism that the Bank of Japan may finally end its ultra-loose monetary policy after decades of near-zero interest rates.
Behind the Nikkei 225 are the following indices: Taiwan's Taiex (up 26.83%), India's Nifty 50 (up 20.03%), Korea's Kospi (19.3%), and India's BSE Sensex (18.74%). The VN-Index and HNX-Index are not on the list of the strongest-growing stock indices in the Asian market in 2023.
Hong Kong's Hang Seng, on the other hand, is the region's worst-performing index, having posted four straight years of declines after losing nearly 14% in 2023.
Japanese stocks to be Asia's top gainers in 2023. Photo: Getty Images
Highlighting China's slow recovery is the performance of the CSI 300, a gauge of the largest companies listed in Shanghai and Shenzhen, which was the third-worst performing stock market in Asia, losing 11.38% last year.
China's post-reopening process has been "dismal" due to a real estate downturn and local government debt problems, which have hurt spending and dampened demand and investment in the manufacturing sector, Peggy Mak, director of research at PhilipCapital, told CNBC.
Still, Asia's outlook remains bright, according to analysts from Pinebridge Investments.
They see continued strong growth momentum from Asia, as well as “relatively promising prospects,” which they say will offer attractive potential for selective equity investors through 2024.
Asia’s two largest economies cannot be overlooked. While China requires patient, company-specific investment as its economy stabilizes, India is leading the way in many areas.
Their view is supported by the International Monetary Fund, which projects growth of 4.6% in 2023 and 4.2% in 2024 for Asia, compared with global growth forecasts of 3% in 2023 and 2.9% in 2024. This is according to Krishna Srinivasan, IMF director for Asia and the Pacific.
“There are plenty of surprises in 2023, from China’s underwhelming post-Covid recovery to the strength of the US economy, the promise of artificial intelligence and a global recession that is not yet in sight,” said Michael Strobaek, chief investment officer at Lombard Odier, in his 2024 market view.
After 2023, here's what investors are looking for in 2024.
Lower Rates
Interest rate cuts will be front and center on investors' minds.
The US Federal Reserve (Fed) has outlined a roadmap for interest rate cuts, with the so-called “dot plot” implying a 75 basis point rate cut in 2024 and 100 basis points in 2025.
Central banks in Asia and around the world tend to follow the Fed's lead.
Interest rate hikes in major Asian economies have largely stopped, although banks such as the Reserve Bank of Australia have warned they are ready to take further action to rein in inflation.
Central banks in Southeast Asia have largely kept interest rates steady and stopped short of aggressive rate hikes, although banks such as the Philippines' central bank remain hawkish.
The only exception is the Bank of Japan (BOJ), where investors will be watching to see if the central bank exits its negative interest rate policy.
Headline inflation in Japan has been above the BOJ’s 2% target for more than 19 months and will see a 5% increase in spring wage talks led by the Japan Trade Union Confederation. These conditions support policy normalization, said Homin Lee, senior macro strategist at Lombard Odier.
Lee expects the BOJ to raise interest rates to zero by 2024 (from the current minus 0.1%) as well as “gradually end” the bank’s 1% cap on 10-year Japanese government bonds.
Growth “hearts” of Taiwan, Vietnam and Singapore
When inflation falls and interest rates fall, where will the growth sectors be?
Hebe Chen, market analyst at IG International, said 2024 could see inflation normalize and economic growth slow, which would benefit the infrastructure and real estate sectors. Broadly speaking, this would benefit the energy and commodities sectors, as well as industries driving the AI revolution, according to Hebe Chen.
More specifically, Hebe Chen is bullish on real estate investment trusts (REITs) and technology in Asia.
As interest rates fall, REITs will offer more financing options and allow for asset acquisitions or asset recycling — where the REIT divests assets and uses the money to reinvest. That will ultimately push real returns higher for REIT investors.
Growth potential in the emerging global technology cycle and Taiwan, Vietnam and Singapore. Illustration photo
Additionally, Chen said the potential for growth in the global tech cycle is taking shape and Taiwan, Vietnam and Singapore could outperform thanks to their higher concentration in manufacturing and R&D facilities.
That's because Vietnam, Singapore and Malaysia – manufacturing hubs often tapped to reduce reliance on China – are now producing for markets outside China.
As such, they may no longer be vulnerable to a Chinese slowdown. Chen expects a “potential turnaround” for Chinese stocks in 2024, despite their underperformance in 2023.
The world's second-largest economy is likely to see a modest recovery, supported by central government measures and an improving export outlook, she said, adding that a global tech recovery would likely contribute to improving Chinese exports.
Geopolitics and elections
Geopolitical volatility will also be closely watched.
Elections in Taiwan, India and the US are poised to bring “significant changes in the economic and diplomatic aspects of the Asia-Pacific (APAC) region,” Chen said.
“The growing uncertainty and anxiety, inevitably fueled by the rapidly evolving international landscape and the critical point in China-US relations, will not provide easy solace for global investors,” Chen said.
Mak from PhilipCapital said the Taiwan election would be a geopolitical event to watch, adding that “how China reacts to the election results, especially if the pro-independence Democratic Progressive Party retains control, could impact its recently warming relationship with Europe, a key trading partner.”
Next year's US election will also be in focus.
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