A Tour Around Asian Stock Markets

The end of 2015 is nigh and as investors look, as ever, to better things in 2016 it is worth looking at where the best and worst places have been in Asia since Jan.1 this year, and where the markets go in 2016. Are the year’s worst performers poised for a rebound? Or will we just see more of the same with the whole region putting in a sorry performance?

Given what has happened in China since mid-June, the Shanghai index still leads the pack with a gain of 21 percent and a currency decline of just 3 percent against the US dollar. But anyone who got their timing wrong, given Beijing’s ham-handed attempts to manipulate the market, could be sitting on some big losses given the percent decline from the June peak. With government-related accounts now sitting on huge portfolios acquired to prop up the market, and with a host of IPOs in the wings, even a rebound in the economy and pricing power may do no more than stabilize the market in 2016.

Hong Kong has only partly mirrored China, having remained skeptical of the Shanghai boom and bust and also facing concerns about its own property market. An 8 percent fall since January may yet be insufficient given the impact of a strong dollar, to which its currency is pegged, and weakening economy.

Malaysia the problem child

At the other end of the 2015 league table sits Malaysia, with a stock loss of a modest 4 percent but a currency off 22 percent. Just how much of the currency fall, by far the region’s largest, has been due to weak commodity prices and how much to the scandals surrounding the Prime Minister and the state-backed 1Malaysia Development Bhd is hard to estimate.

It has also shown how even a current account surplus cannot shield a currency from lack of trust by Malaysians, let alone foreigners. But there is a case that the currency collapse has been overdone. But equally it is arguable that the stock market is not conspicuously cheap.

Politics has clearly been at work in Thailand, which has performed as poorly as Malaysia despite a more balanced, less commodity-dependent trade position. Falls of 18 percent for the market and 9 percent for the currency are not just outcomes of weak exports and problems for the tourist industry caused by declines in Russian and other currencies against the baht. The military government inspires neither hope that it can stimulate productive investment nor hope that its reign will be short-lived.

Indonesia also a laggard

Not far behind Malaysia and Thailand as underperformers has been Indonesia, with the market and currency both down 12 percent. That is not surprising given its dependence on commodity exports such as coal, copper and palm oil. There seems scant prospect of any commodity-driven rebound in 2016 and policy issues continue to deter some investment. However, the economy as a whole and the current account in particular have responded to the commodity collapse thanks to the cumulative 40 percent decline in the currency since 2013.

Australia is similarly commodity dependent but lingering belief in its safe haven status and ability to run massive external deficits ad infinitum kept its currency decline to 12 percent and stocks decline to just 4 percent. Stocks are supported by good dividend yields and the services sector, but another 10 percent fall in the currency remains more than a possibility.

Singapore’s safe-haven status shaky

Neighborhood troubles as well as some home-grown ones have also shown Singapore not to be quite the safe haven it sometimes assumed to be. Stocks are down 13 percent this year and the currency off 6 percent. Relative upside and downside are limited.

Of Southeast Asian markets, pride of place goes to the one least talked about – Vietnam. The Ho Chi Minh index has eked out a small gain of 3 percent while the dong is down a modest 5 percent against the dollar as continuing investment in export industries, some exiting China, has offset weak commodity prices while official policies have remained cautious. State enterprise reform still lags but 2016 could see further undramatic progress.

The Philippines is often an outlier, being more a commodity importer than exporter but with declines of 6 percent in stocks and 5 percent in the currency it has been looking more like an average Asian market. Even if its remittance and BPO earnings continue to underpin the economy, elections in 2016 are more minus than plus for a market which is thing and not cheap.

Another market which may be a net beneficiary from commodity declines is India, with stocks down only 6 percent and the currency by 5 percent despite concerns that Modi’s pro-business reforms are moving slowly. Corporate debt issues and a market valuation which is not cheap offset the solid growth that the economy can sustain.

Export markets weak for the Asian tigers

As for the developed manufacturing exporters of the region, Japan, South Korea and Taiwan, terms of trade gains are being offset by weak export markets and weak domestic demand as populations everywhere age rapidly. Japan’s market outperformed as monetary stimulus and the impact of the earlier Yen decline saw stocks gain 9 percent while the currency fell just 2 percent. Arguably the current exchange rate is sustainable and more money could flow from bonds to stocks even if the economy as a whole continues to stagnate.

Taiwan and South Korea have both suffered from weaker-than-expected Chinese demand and in some industries from falling prices, as well as competition from a weak yen and euro. However, investor damage has been limited with stocks off 9 percent in Taiwan but the currency down only 3 percent while Korean stocks are just 1 percent lower and the currency 7 percent. Both now look fairly safe havens and Taiwan offers dividend yield.