Asian stock markets have had a good year supported by renewed activity from China. Stock markets in Japan, South Korea, Hong Kong, India, Taiwan and Indonesia have through strong corporate profits, increased economic stimulus, growth in demand and consumption hit new highs.
Since the financial crisis, global markets have been moving steadily upwards as massive liquidity and ultra-low interest rates have created a growth environment for stock values. Asia has certainly benefited from the US demand and the gains made in US markets. It would seem that as long as the US continues to spend, there will be good times for Asian stocks.
At the same time, the growth in China this year has supported other economies in the region with its demand for imported goods and materials. The improvement in Chinese growth this year has pushed up the whole of Asia.
It is thought that the Japanese stock market has scope for further growth. With US$18tn of cash held in low yielding Japanese government bonds, there is massive domestic capital that could see Japanese stocks as a more attractive investment. Japanese equities are relatively cheap and have been publishing improving results.
South Korea’s outlook is particularly good with a 50% increase expected in corporate earnings mainly due to the high price of memory chips. The export of semiconductors, smart phones and cars has given the economy a big boost resulting in rising consumer confidence and spending. The South Korean stock market has some of the world’s most undervalued stock mainly due to poor corporate governance. This is changing to a UK style corporate code which is encouraging to investors.
Interestingly investors seem largely unconcerned about the threats and missile testing by North Korea. Analysts generally consider these threats as posturing and overblown but that view could change if threats turn to actions.
Another threat to the region is US interest rate rises which could affect investment and debt repayment costs, China’s regional banking debt levels and the increased concern about a correction in high market values.