A screen displays stock data at the headquarters of the Taiwan Stock Exchange Corp. in Taipei, Taiwan, on Monday, January 15, 2024.
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Optimism in artificial intelligence lifted Taiwan’s stock market on the first of 2024, making it the top-performing market in the Asia-Pacific so far this year.
The Taiwan Weighted Index is up 28% so far this year, fueled by stocks along the AI value chain.
Heavyweight Taiwan Semiconductor Manufacturing Corp rose 63% in the first half of the year, 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 AI and central bank policy issues, and this is likely to continue,” said Rahul Ghosh, global equities portfolio specialist at asset manager T. Rowe. Price. investment prospects of the business.
The potential and scale of the AI investment cycle continues to drive economic activity worldwide, he said, adding that the impact of AI investment is expanding into sectors such as manufacturing, materials and utilities.
Japan benchmark 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 broke a 34-year-old record in February, surpassing the previous all-time high of 38,915.87 set on December 29, 1989.
After that, the index breached the psychological 40,000 mark and eventually reached a new all-time high close of 40,888.43 on March 22.
While Taiwan may lead Asian markets, Japan appears to be the favored market going forward, among analysts who spoke to CNBC.
Ghosh said improved corporate governance standards continue to have a tangible – and significant – impact on company performance in the world’s fourth-largest economy.
Additionally, a June 14 note from Ben Powell, APAC chief investment strategist at BlackRock Investment Institute, pointed out that the Bank of Japan has growing confidence that it will meet its inflation targets and therefore normalize its monetary “gradual and measured way” policy.
Powell said Japan’s macroeconomic background is favorable for 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 are in positive territory year-to-date, three stock markets — Thailand, Indonesia and the Philippines — fell into negative territory.
Thailand’s SET index plunged 8% in the first six months to be the worst-performing index in the region. The Jakarta Composite fell 2.88% while the Philippine stock index fell about 0.6% over the same period.
All eyes on the Fed
Most central banks in Asia are watching the Federal Reserve’s next move closely, as they usually make monetary policy decisions based on expected moves by the US central bank.
The Fed signaled towards the end of 2023 that there were several rate cuts this year.
The dot chart is a visual representation of each FOMC member’s rate forecast for the short-term bank rate at specific points in the future.
The central bank, however, has set a more aggressive path to tightening monetary policy in 2025, raising its forecast to four cuts of 25 basis points each.
Interest rate cut expectations were repeatedly pushed back as inflation remained stickier than expected. Higher employment and wage growth in the US also added to the narrative that there was no need for the Fed to cut interest rates.
The question now is: When will the first rate cut take place?
The CME FedWatch tool shows that 61% of traders expect the Fed to cut interest rates by 25 basis points at the 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 was echoed by Ken Orchard, head of international fixed income at asset manager T. Rowe Price.
“We still see the Fed cutting 25 basis points at its December policy meeting after the November election is out, and possibly once in the summer.”
However, he predicted the central bank would introduce fewer cuts in 2025 than the dot suggests, calling the 2025 outlook “gloomier” than this year.
“One or two rate cuts next year seems more realistic,” Orchard said, warning that there is a chance the Fed could even raise borrowing costs next year.
“There is a risk that the Fed’s insurance cuts will allow inflation to ease and increase the chances that we will return to a hiking bias in 2025.”
Homin Lee, senior macro strategist at Swiss private bank Lombard Odier, appeared more optimistic, telling CNBC that his base case is two cuts in the second half of 2024.
That’s one less than the three cuts the bank had forecast in its May 9 outlook report, ahead of the Fed’s revised chart.
“That said, we remain confident that rate cuts will begin in September, given the Fed’s ‘asymmetrical’ stance, meaning the barrier to re-tightening is extremely high, while the barrier to initiate rate cuts is much lower.” , Lee added.