Asia's Best Performing Stock Markets in H1 2024: Taiwan and Japan Top the List

Optimism in artificial intelligence has sent Taiwan's stock market soaring in early 2024, making it the best-performing market in the Asia-Pacific region so far this year.

THE Taiwan Weighted Index has jumped 28% so far this year, fueled by stocks across the AI ​​value chain.

Heavy weights Taiwan Semiconductor Manufacturing Company soared 63% in the first half, while rival Foxconn traded as Hon Hai Precision Industry jumped 105% over the same period.

“The performance of global markets this year has been largely driven by 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 ​​investment cycle continues to drive economic activity globally, he said, adding that the impact of AI investments extends to sectors such as manufacturing, 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 gained about 18%.

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

Subsequently, the index broke through the psychological threshold of 40,000 and eventually reached a new all-time closing high of 40,888.43 on March 22.

Although Taiwan leads Asian markets, Japan appears to be the preferred market going forward, according to analysts who spoke to CNBC.

Ghosh said improving corporate governance standards continue to have a tangible and considerable impact on business performance in the world's fourth-largest economy.

Additionally, a June 14 note from Ben Powell, chief Asia-Pacific investment strategist at the BlackRock Investment Institute, noted that the Bank of Japan is increasingly confident in its ability to meet its inflation targets and , therefore, to normalize its monetary policy “in a progressive and measured manner”.

Powell said Japan's macroeconomic backdrop is supportive of risk assets. “We remain overweight 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 since the start of the 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, becoming the region's worst-performing index. The Jakarta Composite fell 2.88 percent while the Philippine stock index slipped about 0.6 percent during the same period.

Most central banks in Asia are closely watching the Federal Reserve's upcoming decisions, as they typically make monetary policy decisions based on the U.S. central bank's anticipated decisions.

The Fed signaled toward the end of 2023 that several rate cuts were being considered this year.

However, the The most recent dot plot from the Fed’s May meeting only projected a single 25 basis point rate cut for the remainder of 2024. This is a significant departure from the chart released in late March, where the Fed implied that rates would be cut by 75 basis points in 2024.

THE CME FedWatch Tool indicates that 61% of traders expect the Fed to cut rates by 25 basis points at the September meeting.

But on June 16, Minneapolis Federal Reserve President Neel Kashkari said it was “reasonable” for the U.S. central bank to cut interest rates once this year, but would wait until December to do so.

Kashkari's view was echoed by Ken Orchard, head of global fixed income at asset management firm T. Rowe Price.

“We still expect the Fed to cut 25 basis points at its December policy meeting, once the November elections are over, and perhaps once during the summer.”

However, he predicted the central bank would enact fewer cuts in 2025 than the dot chart suggests, calling the outlook for 2025 “more murky” than this year.

“One or two rate cuts next year seems more realistic,” Orchard said, warning that there is a possibility the Fed could even raise borrowing costs next year.

“There is a risk that insurance cuts by the Fed will allow inflation to fester and increase the chances of returning to an upward bias in 2025.”

Homin Lee, senior macro strategist at Swiss private bank Lombard Odier, was more optimistic, telling CNBC his base case scenario was 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 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, meaning the hurdle to further tightening is extremely high while the hurdle to the start of a rate cut is much lower,” Lee added.