In 2015, Asian market performance was heavily monitored by investors, largely due to a declining Chinese economy. By the end of Q4 2015, the Nikkei 225 had outperformed the major global indices. Despite China's economic slowdown, there was a visible sign of economic growth in East Asia due to the resilience of Korean stocks. The Asia-Pacific region displayed so much movement in 2015, market analysts have performed detailed analysis to summarise 2015 to help predict how Asian indices may perform in the coming year.
How did the major Asian indices perform in the final months of 2015? Here's a short rundown:
Apple (AAPL)
Nikkei 225: Japan's benchmark stock index, the Nikkei 225, is the price-weighted average of 225 major Japanese companies listed in the Tokyo Stock Exchange. The Nikkei 225 performed brilliantly in Q4 2015. Japan's real estate and financial companies had high earnings growth. Steady returns to the shareholders boosted investor confidence. The Nikkei 225 obtained a major boost from the effective quantitative easing by the Bank of Japan. The Japanese yen was a major factor for the uptrend of the export-oriented Nikkei 225. As the yen weakened against the US dollar, Japanese exporters enjoyed higher profits. The positive consumer sentiment and the rising wages in Japan further strengthened the Nikkei 225.
KOSPI: The KOSPI is the Korean capitalization-weighted index of all stocks on the Korean Stock Exchange. Though the KOSPI received a boost from the fiscal stimulus measures launched by the Korean government and Korean GDP expanded by 2.7%, the index struggled to maintain its growth momentum in Q4 2015. Since exports represent half of Korea's GDP, China's slowdown damaged it considerably. The negative sentiment among export-oriented firms dampened the economic growth.
Hang Seng Index (HSI): The Hang Seng index contains 48 components which represent 60% of market capitalization in the Hong Kong stock exchange. Despite adequate liquidity in the economy, China's slowdown caused HSI's deceleration in Q4. Hong Kong businesses were pessimistic about the island's economy. Housing prices rose heavily in Hong Kong due to abundant domestic credit. Against this backdrop, the US interest rate hike added more stress on the Hong Kong property market as the island's currency peg to the US dollar caused mortgage rates to increase.
Major factors that have an impact on the Asian markets
With rising interest rates in the US and China's slowdown, Asian stock markets are caught in a challenging time. Asia's continuous reliance on debt to boost economic growth can dampen its stock markets. Since the Chinese economy is still on a downturn, demand coming from China is declining along with the country’s purchasing power, which has a direct knock-on effect on other exporters in the region who rely on Chinese markets. As a result, demand for Asian commodities like Indonesian coal and Malaysian palm oil keep falling. As foreign investment in the Asian markets dwindles, a deflationary situation is possible and implies lower stock prices across Asia. On the bright side, there's less downward pressure on many Asian currencies. Nevertheless, Asian stocks still have the opportunity to recover from the decline they’ve experienced and then recover when US recovery fuels global economic growth.
Asian markets: What do the analysts expect in 2016?
Analysts estimate that despite the slowing Chinese economy, Korean GDP may expand by 2.8% in 2016. As well, the Korean housing market is recovering and this will encourage investors. Hong Kong is at risk since it sends over one-third of its exports to China, and this accounts for more than 10% of its GDP. Further stability of the Yuan could boost the Hong Kong stock market. Analysts at PIMCO are hopeful of a repetition of 2015's brilliant performance of the Nikkei 225. Higher corporate dividends and the buybacks from the Japanese government are estimated to boost the Nikkei. The only problem for Japanese stocks in 2016 would be the yen. The Bank of Japan is struggling to keep the yen low and strengthen its export earnings. Analysts predict that the yen might rise in 2016 and the Japanese government can't afford further stimulus.
The major Asian indices have shown resilience regardless of the slowdown in the Chinese economy. The continuous efforts of the governments and strong domestic performance of Asian economies are likely to build a positive environment for the Asian investors in the year ahead.
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