Asian Stock Markets: Investment Strategy for 2024

Benjamin Graham, the legendary investment analyst, pointed out an uncomfortable truth: the higher stock prices rise, the greater the risk buyers assume. From this perspective, Asian markets, especially those of the Chinese giant, could present attractive opportunities in the current situation. This analysis examines the reality of Asia’s main financial markets and the prospects for the coming year.

The Current Landscape: A Deep Correction in Asia

The prevailing narrative in Asian markets revolves around the structural imbalances facing the Chinese economy and the measures the government will deploy to reverse them. Since the peak in 2021, the three main Chinese Asian stock exchanges — Shanghai, Hong Kong, and Shenzhen — have erased approximately $6 trillion in market value.

Benchmark indices show a dramatic contraction between the first quarter of 2021 and today. The China A50 fell 44.01%, the Hang Seng declined 47.13%, and the Shenzhen 100 suffered a 51.56% drop. This debacle reflects a convergence of pressures:

• Lasting consequences of the Zero-COVID policy
• Stricter regulation of tech giants
• Persistent real estate sector crisis
• Contraction of global demand
• Trade friction with the United States, particularly in semiconductors

The result: the Chinese economy has abandoned its historical double-digit growth rates. Foreign direct investment is shrinking, manufacturing is shifting toward emerging economies like India, Vietnam, and Indonesia, and China’s demographics are aging rapidly.

Institutional Response: Are Stimuli Sufficient?

In response, the People’s Bank of China announced reductions in the Reserve Requirement Ratio by 50 basis points, releasing approximately 1 trillion yuan (139.45 billion USD) for injection into the economy.

Even more ambitious is the stabilization package under consideration: 2 trillion yuan (278.90 billion USD) from offshore state-owned enterprise funds, aimed at stock purchases to halt the ongoing mass selling.

Simultaneously, the central bank has kept the 1-year lending rate at historic lows of 3.45% since late 2021. The current deflationary context reinforces the need for these liquidity stimuli.

What is concerning is the timing: these measures come late and seem disconnected from a comprehensive economic strategy. Their effectiveness will depend on whether they generate sustained confidence. Meanwhile, Q4 2023 growth was just 5.2%, far from expectations and previous dynamism.

Anatomy of Asian Financial Markets

Asian stock exchanges represent the fabric of equity markets operating in Asia-Pacific, a region that concentrates the largest and most populous continent on Earth. For decades, the global economic epicenter has shifted toward Asia, creating unprecedented investment opportunities.

China, the second-largest economy in the world, hosts three of Asia’s most significant stock exchanges: Shanghai (the largest in the region), Hong Kong, and Shenzhen. These markets list over 6,800 companies, though with restrictions for foreign investors. India, the fifth-largest economy, operates several markets with Mumbai as the main one, where over 5,500 companies are listed.

Complementing the ecosystem are developed economies such as South Korea, Taiwan, Singapore, Australia, and New Zealand, along with dynamic emerging markets: Indonesia, Thailand, the Philippines, Vietnam, and Malaysia.

Stock Market Capitalization Ranking in Asia

In 2023, the largest Asian stock markets by capitalization were:

Shanghai leading with $7.357 trillion, followed by Tokyo (5.586 trillion), Shenzhen (4.934 trillion), and Hong Kong (4.567 trillion). Together, China’s stock markets reached $16.86 trillion, positioning China as a regional stock market powerhouse. India, South Korea, Australia, and Taiwan complete the picture of the most important Asian markets.

It is worth remembering that Tokyo was undisputedly dominant until the 1980s, before Japan’s prolonged stagnation. This illustrates how the relative position of Asian markets fluctuates with economic cycles.

Global Context: U.S. Leadership Persists

Despite Asian dynamism, the United States maintains absolute stock market hegemony. In 2022, it accounted for 58.4% of global market capitalization, while Japan, China, and Australia combined accounted for just 12.2%.

This U.S. supremacy rests on its prolonged growth trajectory, robust institutions, and control of the dollar as a reserve currency. However, extensive state intervention in Asian economies like China could limit their future potential, contrasting with freer market mechanisms in the West.

Structural Challenges for Asian Stock Markets

The region faces four major challenges:

Geopolitical instability: The Korean Peninsula, Taiwan Strait, South China Sea, and India-China border are points of latent friction. Military or trade conflicts would directly impact these Asian markets.

Economic slowdown: Chinese growth is expected to be more modest, with cascading effects on economies dependent on Asian trade. The post-COVID recovery has not yet concluded.

Accelerated demographic transition: Aging, urbanization, and migration increase social security costs, create environmental pressure, and lead to labor shortages in Asian markets based on manufacturing.

Climate vulnerability: Extreme events, biodiversity loss, and food insecurity threaten the region. Asia contributes approximately 50% of global greenhouse gas emissions.

Technical Analysis: Three Indices Under Pressure

China A50: Tracks 50 Shanghai and Shenzhen class A shares with the largest market capitalization. Since its all-time high of $20,603.10 in February 2021, it has maintained a downward trend. Currently trading at $11,160.60, 9.6% below its 50-week moving average of $12,232.90. The RSI fluctuates below its mid-level, indicating bearish consolidation. A sustained breakout above these levels would be necessary for a trend reversal.

Hang Seng: Capitalization-weighted index with over 80 Hong Kong companies. Currently trading at HK$16,077.25, below its downward trendline. Similar to the A50, it requires support confirmation at current levels or a decline toward HK$10,676.29.

Shenzhen 100: Measures the top 100 Shenzhen class A shares. Since highs of 8,234 yuan in February 2021, it trades at 3,838.76 yuan — 16.8% below its 50-week moving average. The RSI hits oversold territory (30), indicating potential technical rebound if effective economic stimuli are confirmed.

Latent Opportunity in Asian Markets

Despite the adverse outlook, there is investment potential if economic activity rebounds accompanied by favorable policies. The key is to monitor announcements of monetary, fiscal, and regulatory stimuli from China.

Strategies for Investing in Asian Markets

( Direct Stock Purchase

If you seek direct ownership, you can buy shares of Chinese corporations listed on Western exchanges. These give you fractional ownership and dividend rights.

The largest Chinese companies rival Western giants in scale. In 2022, State Grid )utilities, oil, banking### generated $530 billion in revenue, surpassing Walmart (611 billion) and Amazon (514 billion). However, most of these giants operate in traditional sectors (utilities, oil, banking) with restrictions for foreign retail investors.

More accessible alternatives include JD.com (e-commerce, $156 billion in revenue), Alibaba, Tencent, Pinduoduo, Vipshop, and BYD (vehicles), available via ADRs in Western markets.

( Derivative Instruments

For indirect speculation, Contracts for Difference )CFD### allow exposure without acquiring the underlying asset, operable on regulated platforms specializing in Asian markets.

Final Reflection

The window for stocks in Asian markets opens when two factors converge: verifiable economic recovery in China and policies that reinforce this trend. Until then, prudence recommends waiting for confirmations before taking aggressive positions. The promise of these Asian markets remains intact, but timing is crucial.