- AI optimism boosted Taiwan's stock market in the first half of 2024, making it the best-performing market in Asia-Pacific so far this year.
- Stock markets in Thailand and Indonesia were the worst performers in the region, falling 8% and almost 3% respectively in the first six months of the year.
Optimism in artificial intelligence boosted Taiwan's stock market in early 2024, making it the best-performing market in Asia-Pacific so far this year.
He Taiwan Weighted Index is up 28% year-to-date, driven by actions across the AI โโvalue chain.
Heavyweight Taiwan Semiconductor Manufacturing Corporation rose 63% in the first half of the year, while rival Foxconn, which is listed as Hon Hai Precision Industry โ increased 105% in the same period.
"The performance of global markets this year has been largely driven by the themes of artificial intelligence and central bank policy, and that is likely to continue," said Rahul Ghosh, global equity portfolio specialist at asset management firm T. Rowe Price, in the firm's investment outlook.
The potential and scale of the AI โโinvestment cycle continues to drive economic activity globally, he said, adding that the impact of AI investments are expanding to sectors such as industrials, materials and utilities.
Japan's benchmark index Nikkei 225 ranked second in the region, after repeatedly surpassing All-time highs earlier this year. In the first six months of the year, the Nikkei has gained around 18%.
The Nikkei hit a 34-year high in February, surpassing its previous all-time high of 38,915.87, set on December 29, 1989.
Next, the index exceeded the psychological threshold of 40,000and finally reached a new all-time high closing price of 40,888.43 on March 22.
While Taiwan may lead Asian markets, Japan appears to be the favorite market going forward, according to analysts who spoke to CNBC.
Ghosh said it improved corporate governance standards continue to have a tangible โ and significant โ impact on the performance of businesses in the worldโs fourth-largest economy.
Additionally, a June 14 note from Ben Powell, chief Asia Pacific investment strategist at BlackRock Investment Institute, noted that the Bank of Japan has increasing confidence that it will meet its inflation targets and, as such, normalize its monetary policy "in a gradual and measured manner."
Powell said Japan's macroeconomic backdrop is supportive for risk assets. "We remain overweight Japanese equities, buoyed by strong corporate reform momentum, healthy earnings, and valuation support from still-negative real interest rates."
While most Asian markets are in positive territory so far this year, three stock markets (Thailand, Indonesia and the Philippines) fell into negative territory.
Thailand's SET index plunged 8% in the first six months, making it the region's worst-performing index. The Jakarta Composite dropped 2.88%, while the Philippine Stock Exchange Index fell about 0.6% in the same period.
All eyes on the Federal Reserve
Most central banks in Asia closely monitor the Federal Reserve's next move as they typically make monetary policy decisions based on the US central bank's anticipated moves.
The Federal Reserve signaled toward the end of 2023 that several rate cuts were in play this year.
However the The latest "dot plot" from the Federal Reserve's May meeting projected only a 25 basis point cut for the remainder of 2024. This was a large departure from the Chart published at the end of March.where the Fed hinted that rates will be cut by 75 basis points in 2024.
The dot plot is a visual representation of each FOMC member's interest rate projection for the bank's short-term interest rate at specific times in the future.
However, the central bank has charted a more aggressive path to tighten monetary policy in 2025, raising its forecast to four cuts of 25 basis points each.
Rate cut expectations have been repeatedly postponed as Inflation remained more rigid than expected. Higher Employment and wage growth in the United States He also added to the narrative that there was no need for the Federal Reserve to cut rates.
The question now is: when will the first rate cut come?
He CME FedWatch Tool indicates that 61% of traders expect the Federal Reserve to cut rates by 25 basis points at the September meeting.
But on June 16, Minneapolis Federal Reserve President Neel Kashkari said it is a "reasonable prediction" that the US central bank will cut interest rates once this year, but will wait until December to do so.
Kashkari's view was echoed by Ken Orchard, head of international fixed income at asset management firm T. Rowe Price.
"We still see the Fed cutting 25 basis points at its December policy meeting, once the November election is over, and possibly once in the summer."
However, he predicted the central bank would implement fewer cuts in 2025 than the dot plot suggests, and called the outlook for 2025 "mudder" than this year.
"One or two rate cuts next year seem more realistic," Orchard said, warning that there's a chance the Federal Reserve could even raise borrowing costs next year.
"There is a risk that the Fed's insurance cuts could allow inflation to worsen and increase the likelihood of a return to an upward trend in 2025."
Homin Lee, senior macroeconomic strategist at Swiss private bank Lombard Odier, seemed more optimistic, telling CNBC that his base case is two cuts in the second half of 2024.
That's one less than the three cuts the bank had forecast in its May 9 outlook report, before the Fed's revised dot plot.
"That said, we remain confident that rate cuts will begin in September, given the Fed's 'asymmetric' stance, i.e. the hurdle to further tightening is extremely high while the hurdle to the start of rate cuts is much lower," Lee added.
