Emerging Opportunities in Asian Financial Markets: Outlook for 2024

Asian financial markets are at a historic crossroads. While China seeks to stabilize its economy with unprecedented stimulus measures, the rest of the region watches closely. For those who understand Benjamin Graham’s investment cycle—where low valuations create opportunities and high valuations pose risks—this moment could represent a decisive inflection point in Asian financial markets.

The current landscape: Contraction and hope

The magnitude of the correction in Asian financial markets is enormous. Since the highs of 2021, the three main stock exchanges in China—Shanghai, Hong Kong, and Shenzhen—have experienced a wipeout of approximately $6 trillion in market capitalization.

The numbers are compelling: the China A50 index has fallen 44.01%, the Hang Seng by 47.13%, and the Shenzhen 100 by 51.56%. This massive depreciation reflects a perfect storm of converging factors:

• The failure of the Zero-COVID policy and its abrupt reversal
• Stricter regulations on the tech sector
• Structural crisis in the real estate market, the backbone of China’s economy
• Contraction of global demand due to worldwide economic slowdown
• Trade tensions and technological restrictions with the United States

The Chinese economy has slowed dramatically, shifting from double-digit growth rates to just 5.2% in the last quarter of 2023, below projections. Foreign investment is retreating, and manufacturing is migrating to Vietnam, Indonesia, and India.

Policy response and recovery potential

The Chinese central bank has released liquidity by reducing reserve requirements by (50 basis points), injecting approximately 1 trillion yuan into the system. Even more significant is the stabilization package of 2 trillion yuan under discussion, financed through offshore accounts of state-owned enterprises, aimed at stock purchases to counteract the massive sell-off.

The prime lending rate remains at historic lows of 3.45%, reflecting an easing bias. However, these measures come late and face a deflationary environment that reduces domestic consumption.

Structure of Asian financial markets: Geographic scope

Asian financial markets include all stock exchanges and capital markets across the Asia-Pacific region. This continent, being the largest and most populous on Earth, has gradually shifted the global economic center of gravity toward its borders.

The main markets reflect this distribution:

• China: Hosts three of Asia’s largest markets. Shanghai leads the region with $7.357 trillion in market cap; Shenzhen totals $4.934 trillion; Hong Kong adds $4.567 trillion. Together, Chinese Asian financial markets total $16.9 trillion.

• Japan: With $5.586 trillion in market cap, Tokyo retains regional importance, though its global share has declined from 40% in 1989.

• India: The fifth-largest economy worldwide, with the Bombay Stock Exchange hosting over 5,500 listed companies.

• Developed economies: South Korea, Australia, Taiwan, Singapore, and New Zealand represent mature markets in the region.

• Dynamic emerging markets: Indonesia, Thailand, the Philippines, Vietnam, and Malaysia show uneven but promising growth.

The combined market capitalization of the most important Asian financial markets—Japan, China, Australia—reached 12.2% of the global market in 2023, a significant figure but still far from the US dominance (58.4%).

Structural challenges for Asian financial markets

Four fundamental challenges hinder sustained expansion:

Geopolitical instability: The Korean Peninsula, Taiwan Strait, South China Sea, and India-China tensions are latent conflict hotspots. The US role as a strategic ally amplifies these uncertainties.

Prolonged slowdown: China, the region’s economic anchor, maintains modest growth rates. This has secondary effects on nations dependent on Chinese trade, investment, and tourism. The post-pandemic recovery remains incomplete.

Accelerated demographic transition: Aging populations, mass urbanization, and declining birth rates exert pressure on social security, create labor shortages, and erode traditional growth capacity.

Climate vulnerability: The region faces increasing extreme events, biodiversity loss, and food insecurity. Simultaneously, it contributes about 50% of global greenhouse gas emissions, requiring a balance between development and sustainability.

Technical analysis of key indices

China A50: Since its all-time high of $20,603.10 in February 2021, it is currently trading at $11,160.60, 9.6% below its 50-week exponential moving average (12,232.90 dollars). The Relative Strength Index remains in a consolidated bearish zone. Significant support levels are at $10,169.20 (2018 lows) and $8,343.90 (2015 lows). A sustained break above the moving average and a change to an upward slope would signal a reversal.

Hang Seng: Trades at HKD 16,077.25, below the downward trendline and its 50-week moving average. The RSI remains in bearish consolidation. Next relevant resistance levels: HKD 18,278.80 and HKD 24,988.57.

Shenzhen 100: At CNY 3,838.76, down 16.8% from its 50-week average. RSI approaches oversold territory. Main supports: CNY 2,902.32 (2018 lows) and resistance at CNY 4,534.22 (2010 highs).

Investment strategies in Asian financial markets

Direct stocks: Major Chinese corporations rival Western giants in scale. State Grid (utilities), China National Petroleum, and Sinopec dominate revenues but face restrictions for foreign retail investors. More accessible alternatives include JD.com ($156 billion in annual revenue), Alibaba, Tencent, Pinduoduo, Vipshop, and automaker BYD, tradable via ADRs on Western exchanges.

Derivatives: Contracts for Difference (CFDs) on Asian indices allow speculative exposure without owning underlying assets, operable on established platforms specializing in Asian financial markets.

Conclusions and outlook

Asian financial markets present a dichotomy. On one hand, depressed valuations create attractive opportunities from a value investing perspective. On the other, structural challenges—geopolitical, demographic, regulatory—remain unresolved.

The key is to monitor monetary, fiscal, and regulatory stimulus policies. If China manages to stabilize its economy and restore market confidence, Asian financial markets could undergo a significant recovery. Otherwise, the bullish consolidation will be slow and volatile.

For investors in 2024, Asian financial markets represent a bet on the capacity for reform and institutional adaptation. The coming quarters will define the narrative.