A screen displays stock figures at the Taiwan Stock Exchange Corp headquarters in Taipei, Taiwan, Monday, Jan. 15, 2024.
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Optimism in artificial intelligence led Taiwan’s stock market at the start of 2024, making it the best-performing market in Asia-Pacific to date.
At Taiwan Weight Index has risen 28% so far this year, boosted by stocks in the AI ​​value chain.
Heavy weight Taiwan Semiconductor Manufacturing Corp. Stock price history climbed 63% in the first half of the year, while rival Foxconn – trade as Hon Hai Precision Industry – jumped 105% in the same period.
“The performance of the global market this year has been largely driven by the theme of Artificial Intelligence and central bank policy, and that is likely to continue,” said Rahul Ghosh, global venture portfolio specialist at the asset management company T. Rowe Price said in the company’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 investment is spreading to sectors such as industry, materials and utilities.
Japan’s benchmark index Nikkei 225 ranked second in the region, after repeatedly surpassing its highest level earlier this year. In the first six months of the year, the Nikkei has gained about 18%.
The Nikkei hit a 34-year high in February, breaking the previous high of 38,915.87, set on December 29, 1989.
After that, the index rose above the psychological threshold of 40,000, and finally reached a new all-time closing high of 40,888.43 on March 22.
While Taiwan may lead the Asian market, Japan seems to be the favored market moving forward, among analysts who spoke to CNBC.
Ghosh said improved corporate governance standards continue to have a real – and substantial – impact on corporate performance in the world’s fourth-largest economy.
Furthermore, a June 14 note from Ben Powell, chief APAC investment strategist at BlackRock Investment Institute, stated that the Bank of Japan has increased its confidence to meet the inflation target, and thus, normalize monetary policy “in a gradual and measured manner.”
Powell said Japan’s macroeconomic backdrop is more favorable to risk assets. “We remain overweight Japanese equities, driven by strong corporate reform momentum, healthy earnings and value support from still negative real interest rates.”
While most Asian markets were in positive territory year-on-year, three stock markets – Thailand, Indonesia and the Philippines – fell into negative territory.
Thailand’s SET index fell 8% in the first six months, making it the worst performing index in the region. The Jakarta Composite fell by 2.88% while the Philippine bourse index fell by 0.6% in the same period.
All eyes on the Fed
Most central banks in Asia are closely watching the Federal Reserve’s next move, as they usually make monetary policy decisions based on anticipated steps by the US central bank.
The Fed hinted at the end of 2023 that some rate cuts are on the cards this year.
However, the latest “dot plot” from the Fed’s May meeting depicted only one cut of 25 basis points for the rest of 2024. This is a big departure from the chart released in late March, where the Fed indicated that rates will be cut by 75 basis points in 2024. .
A dot plot is a visual representation of each FOMC member’s interest rate projection for the bank’s short-term interest rate at a specific point in the future.
However, the central bank has set a more aggressive path to tightening monetary policy in 2025, increasing its forecast to four cuts of 25 basis points each.
Expectations of interest rate cuts have been repeatedly rejected as inflation remains stickier than expected. Higher employment and wage growth in the US also add to the narrative that the Fed does not need to lower rates.
The question now is: When will the first rate cut happen?
CME’s FedWatch tool shows that 61% of traders expect the Fed to cut rates by 25 basis points at its September meeting.
But on June 16, Minneapolis Federal Reserve President Neel Kashkari said it was a “reasonable prediction” that the US central bank would cut interest rates once this year, but would wait until December to do so.
Kashkari’s view is 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 the December policy meeting, after the November election is absent, and possibly once in the summer.”
However, he predicted that the central bank would make 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 there was a chance the Fed could even raise borrowing costs next year.
“There is a risk that insurance cuts by the Fed could allow inflation to rise and increase the likelihood of a return to a hiking bias in 2025.”
Homin Lee, senior macro strategist at Swiss private bank Lombard Odier, seems more optimistic, telling CNBC that the base case is two cuts in the second half of 2024.
That’s less than the three cuts the bank predicted in its May 9 outlook report, ahead of the Fed’s revised point plan.
“That said, we are still confident that rate cuts will start in September, given the Fed’s ‘asymmetric’ attitude, ie the hurdles to renew tightening are very high while the hurdles to start cutting rates are lower,” Lee added.