Moving into 2024, alongside China's efforts to revive its slowing economy , Asian investors are eyeing the possibility of interest rate cuts across the region, including negative interest rates in Japan.
Asia looks set to enter a “sweet spot” early this year, with developed countries outperforming on the back of a recovery in the semiconductor sector, but Japanese bank Nomura sees the second half of the year as a potential recession in the US.
The Asian market in 2024 will continue the recovery of the Japanese stock market, which exploded last year, with the Nikkei Stock Average rising to a new 33-year high. The rally is expected to continue this year, thanks to moderate inflation, higher base wages, steady foreign capital inflows, strong corporate earnings and corporate governance reforms.
Investors in the Japanese stock market are also watching to see if the Bank of Japan exits its negative interest rate policy in 2024, as the end of negative interest rates - the ultimate result of deflation - would be positive for Japanese stocks.
Goldman Sachs Group Inc. expects central banks in emerging markets in Asia to ease monetary policy sooner than previously forecast, while also expecting the U.S. to cut its federal funds rate relatively early this year. Indonesia and South Korea are expected to start cutting rates in the second quarter, followed by India, Australia and New Zealand in the following quarter, Nikkei Asia reported, citing experts.
The Bank of Japan looks set to formally end its negative interest rate policy in October. Goldman Sachs macro strategist Koichi Sugisaki estimates the yen-dollar exchange rate will hit a record 140 in the fourth quarter. MUFG Morgan Stanley expects the yen to strengthen modestly by 2024.
The region’s bond markets are poised to attract inflows this year. Nikko Asset Management said Indian government bonds will benefit after being included in the JP Morgan Emerging Markets Government Bond Index in June.
According to Goldman Sachs, after this change, the Indian bond market will attract more than $40 billion in inflows in 1.5 years, including passive inflows of about $30 billion.
South Korea is also optimistic about being included in the World Government Bond Index (WGBI) of leading global index provider FTSE Russell in September, which is expected to bring $60 billion in foreign inflows to the South Korean market.
Meanwhile, despite a series of measures by the government to boost the economy, China's economic recovery path looks rocky in the new year, prompting investors to brace for further impact.
Twenty-five economists surveyed by Nikkei Asia and Nikkei Quick News said they expect China's gross domestic product growth to reach 4.6% this year, in line with the International Monetary Fund's forecast, after forecasting 5.2% growth in 2023. China's central bank is expected to cut its policy rate by 10 basis points (0.1%) and the government will roll out more fiscal stimulus in the coming months.
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