Taiwan Tops Asia's Best-Performing Stock Markets So Far in 2024. Japan Is No. 2 – NBC New York

• Optimism about AI has driven Taiwan's stock market higher in the first half of 2024, making it the best-performing market in the Asia-Pacific region 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 the field of artificial intelligence has pushed Taiwan's stock market higher in the first half of 2024, making it the best-performing market in the Asia-Pacific region so far this year.

THE Taiwan Weighted Index has jumped 28% year-to-date, fueled by AI value chain stocks.

Heavy weights Taiwan Semiconductor Manufacturing Company soared 63% in the first half of the year, while rival Foxconn was trading at Hon Hai Precision Industry jumped 105% during 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,” Rahul Ghosh, global equity portfolio specialist at asset management firm T. Rowe Price, said 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 industrial, materials and utilities.

Japan's benchmark index Nikkei 225 ranked second in the region, after having repeatedly exceeded historic peaks earlier this year. In the first six months of the year, the Nikkei gained about 18%.

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

Following this, the index exceeded the psychological threshold of 40,000and finally reached a new historical closing record from 40,888.43 as of March 22.

While Taiwan may lead Asian markets, Japan appears to be the preferred market going forward, according to analysts who spoke to CNBC.

Ghosh said it had improved corporate governance standards continue to have a tangible and significant impact on business performance in the world's fourth largest economy.

Additionally, a June 14 note from Ben Powell, chief investment strategist for APAC at the BlackRock Investment Institute, noted that the Bank of Japan is increasingly confident that it will achieve its inflation targets and, as such, will normalize monetary policy “in a gradual and measured manner.”

According to Powell, the Japanese macroeconomic environment is favorable for risk assets. “We remain overweight in Japanese equities, thanks to the strong dynamic of corporate reform, healthy profits and the support for valuations provided by real interest rates that are still negative. »

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.

All eyes are on the Fed

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 May Fed meeting forecast only one 25 basis point reduction for the remainder of 2024. This represented a huge change from the chart published at the end of Marchwhere the Fed hinted that rates would be cut by 75 basis points in 2024.

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

The central bank, however, has forecast a more aggressive monetary tightening policy in 2025, increasing its forecast to four cuts of 25 basis points each.

Expectations for rate cuts have been repeatedly pushed back as Inflation remained higher than expected. Upper employment and wage growth in the United States It also added to the narrative that there was no need for the Fed to cut rates.

The question now is: when will the first rate cut take place?

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 that 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 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 adopt fewer cuts in 2025 than the dot plot suggests, calling the outlook for 2025 “murkier” than this year.

“One or two rate cuts 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 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 that his base case was 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.