Vietnam ranks third, real estate will shine

Asia-Pacific markets are set to hit new highs in 2023, with Japan's Nikkei 225 emerging as the best-performing stock index. The region is expected to continue to do well next year.

So which market will perform better in 2024?

The top-performing markets in Asia-Pacific in the first half of 2024 will be India, Japan and Vietnam — here's why, analysts told CNBC.

Asia Pacific Vietnam Third Place Real Estate Expectations Image 1 — Japan's Nikkei 225 was the best-performing index in 2023. Many believe stocks in the region have plenty of room to break out in 2024. Photo: Getty Images

India

The Indian stock market emerged as one of the most popular in the region last year and investors are optimistic about the country's long-term prospects.

The benchmark Nifty 50 index is up 20% in 2023 and hitting a string of record highs.

India's economic growth is expected to outpace other major Asian economies by 2024. The International Monetary Fund (IMF) forecasts the country's real GDP to grow by 6.3% this year, the same rate as expected for 2023.

India's growth outlook is a strong driver for its stocks at a time when its neighbor and the region's largest economy, China, is struggling to meet its 5% GDP growth target for 2023.

The Indian stock market is also benefiting from strong earnings, impending interest rate cuts and increased participation from domestic investors, all of which are expected to help the Nifty 50 rally to a record high next year.

The focus for 2024 will be the country’s general election. Strategists from JP Morgan said in a note that they expect the Nifty 50 index to hit 25,000 next year, if the ruling nationalist Bharatiya Janata Party retains power.

The 25,000 target represents an increase of more than 15% from the index's last close of 21,710.

However, JPM warned that “if the general election results are not as expected, coupled with a global recession, geopolitical tensions, higher oil prices or higher domestic unemployment rates,” the Nifty could fall to 16,000.

Japan

Japan's Nikkei 225 was the top-performing stock index in Asia last year, and analysts believe the country's stock market has plenty of room to run in 2024.

The recovery in Japanese stocks saw the blue-chip Nikkei 225 index rise 28% last year and the more optimistic Topix ended more than 25% higher.

Japanese stocks were boosted by strong earnings and growing hopes that the Bank of Japan may finally end its ultra-loose monetary policy after decades of near-zero interest rates.

Masashi Akutsu, strategist at BofA Global Research, said he expects the recovery in the Japanese market to continue well into 2024, noting an increase in foreign investment.

Strategists at BofA predict the Nikkei 225 will hit 37,500 by the end of 2024. The index is currently trading at around 33,464.17.

Akutsu said technology and banks are BofA's top picks for next year, as those sectors rebalance portfolios with both growth- and value-focused stocks, at a time when markets expect the Bank of Japan to end its ultra-loose monetary policy.

The Bank of Japan (BOJ) ended its last meeting of 2023, leaving interest rates in negative territory at -0.1%, while sticking to its yield curve control policy, keeping the upper limit for the 10-year Japanese government bond yield at 1% as a reference.

However, a slowing economy and cooling inflation could pose a potential challenge for the BOJ as it looks to ease its ultra-accommodative stance. Investors will also be looking ahead to next year’s annual spring wage talks for confirmation of meaningful wage increases.

Vietnam

Like India and Japan, Vietnam has benefited from the “China plus one” strategy as companies diversify investments to help reduce dependence on China.

Vietnam expects to achieve GDP growth of 6% to 6.5% by 2024 thanks to strong imports and exports as well as stronger manufacturing activity.

Optimism in the Vietnamese market also caused foreign direct investment to increase by more than 14% last year compared to 2022.

According to LSEG data, $29 billion in foreign direct investment was committed to Vietnam between January and November last year.

China accounted for half of new FDI inflows into Vietnam this year, reflecting the Southeast Asian nation’s appeal as a rising manufacturing hub, said Yun Liu, ASEAN economist at HSBC.

Now is the right time for investors to invest in Vietnamese stocks, said Andy Ho, chief investment officer of VinaCapital Group.

“In the next six to 12 months, Vietnam will be a good market because it is valued at about 11 to 12 times earnings for 2023,” Ho told CNBC.

“The average daily trading volume in Vietnam has increased from $500 million a year ago to around $1 billion a day today,” he said, adding that investment opportunities can be found in the consumer, healthcare and real estate sectors.

“People are starting to realize that when they have a lot of liquidity, they don't want to put it in the bank because the interest rates are no longer attractive, and then they will look at other options to invest,” Ho analyzed.

Investors should also be optimistic about Vietnam’s e-commerce sector, said Tyler Nguyen, vice president and head of institutional equity sales at Maybank Securities Vietnam.

“We are seeing 20-30% growth year-on-year,” he told CNBC, pointing out that e-commerce accounts for only 2-3% of retail sales.

Asked about the possibility of Vietnam joining MSCI's emerging market list, Nguyen said the frontier economy is still "at a very nascent stage" but "we can see good news by 2025."

Asia Pacific Vietnam Third Place Real Estate Expectations Image 3 — A worker scans and checks goods on shelves at a Tiki.vn warehouse in Ho Chi Minh City on May 24, 2021. Photo: Getty Images

China

Chinese consumer confidence has yet to recover from the pandemic due to high youth unemployment, debt risks and a struggling property sector, making consumption habits “more rational,” Jefferies said in a note.

Although the pessimism in the Chinese market is unlikely to dissipate anytime soon, analysts say there are still bright spots.

Jefferies expects sales growth to normalize next year and has advised investors to look at consumer sectors such as beer and sporting goods. Maybank also favors the consumer sector, along with China’s “new economy” segment.

Jefferies is also bullish on China's healthcare sector, recommending investors "cherry pick" stocks poised to see better-than-expected growth and margin expansion.

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