Asia’s Best-Performing Stock Markets in the First Half of 2024: Taiwan, Japan Top the List

Optimism about artificial intelligence has fueled Taiwan’s stock market to surge in early 2024, making it the best-performing market in Asia-Pacific this year.

The Taiwan Weighted Index is up 28% this year, driven by stocks across the AI ​​value chain.

heavyweight Taiwan Semiconductor Manufacturing Corporation up 63% in the first half of the year, while its rival Foxconn — which trades at Hon Hai Precision Industry – increased by 105% in the same period.

“The performance of global markets this year is largely driven by driven by the themes of Artificial Intelligence and central bank policy, and that is likely to continue.”

The potential and scale of the AI ​​investment cycle continues to drive economic activity globally, he said, adding that the impact of AI investment is expanding into sectors such as industrials, materials and utilities.

Japan Standard Index Nikkei 225 ranked second in the region, after continuously passing all time high early this year. In the first six months of the year, the Nikkei index has increased by about 18%.

The Nikkei index broke a 34-year record in February, surpassing the previous all-time high of 38,915.87 set on December 29, 1989.

Accordingly, index increased beyond the psychological threshold of 40,000and finally reach a new all-time closing high of 40,888.43 on March 22.

While Taiwan may lead the Asian market, Japan appears to be the favored market in the near term, according to analysts who spoke to CNBC.

Ghosh says it has improved corporate governance standards continues to have a tangible — and significant — impact on corporate performance in the world’s fourth-largest economy.

Furthermore, a June 14 note from Ben Powell, chief APAC investment strategist at BlackRock Investment Institute, pointed out that the Bank of Japan is increasingly confident that it will meet its inflation targets and is therefore normalizing its monetary policy “in a gradual and measured manner.”

Powell said Japan’s macroeconomic backdrop is favorable for risk assets. “We remain bullish on Japanese equities, driven by strong corporate reform momentum, healthy earnings and valuation support from still-negative real interest rates.”

While most Asian markets have been in positive territory so far this year, three stock markets – Thailand, Indonesia and the Philippines – have fallen into negative territory.

Thailand’s SET index fell 8% in the first six months of the year, making it the worst-performing index in the region. The Jakarta Composite Index fell 2.88% while the Philippine Stock Exchange Index fell about 0.6% over the same period.

However, Latest “dot plot” from the Fed’s May meeting Only one 25 basis point cut is expected for the remainder of 2024. This is a huge departure from chart published at the end of Marchwhere the Fed implied that interest rates would be cut by 75 basis points by 2024.

The dot plot is a visual representation of each FOMC member’s interest rate forecast for the bank’s short-term interest rates at specific points in the future.

However, the central bank outlined a more aggressive path to tightening monetary policy in 2025, increasing its forecast to four cuts of 25 basis points each.

Rate cut expectations have been repeatedly pushed back as Inflation remains higher than expected. Higher US job and wage growth also added to the narrative that the Fed does not need to lower interest rates.

The question now is: When will the first rate cut come?

The CME’s FedWatch tool indicates that 61% of traders expect the Fed to cut interest rates by 25 basis points at its September meeting.

But on June 16, Minneapolis Federal Reserve President Neel Kashkari said that a “reasonable guess” that the US central bank will cut interest rates once this year, but will wait until December to do so.

Kashkari’s views are echoed by Ken Orchard, head of international fixed income at asset manager T. Rowe Price.

“We still see the Fed cutting 25 basis points at the December policy meeting, after the November election is over and possibly once in the summer.”

However, he predicted that the central bank will cut less in 2025 than the dot plot suggests, saying the outlook for 2025 is “dimmer” than this year.

“A rate cut or two next year seems more realistic,” Orchard said, warning that it is possible the Fed could even raise borrowing costs next year.

“There is a risk that the Fed’s hedging cuts could cause inflation to rise and increase the likelihood of a return to rate hikes in 2025.”

Homin Lee, senior macro strategist at Swiss private bank Lombard Odier, was more optimistic, telling CNBC that his base case is for two cuts in the second half of 2024.

That’s one less than the three cuts the bank predicted in its May 9 outlook, before the Fed revised its dot chart.

“That said, we remain confident that rate cuts will begin in September, given the Fed’s ‘asymmetric’ stance, i.e. the hurdle for new tightening is extremely high while the hurdle for starting rate cuts is much lower,” Lee added.