Opportunities in Asian Markets: Investment Strategy for 2024

Why Asian Markets Deserve Your Attention Now

Benjamin Graham’s wisdom on asset valuation takes on special relevance in the current environment. When prices fall significantly, risk decreases and better risk-return buying opportunities emerge. Today, Asian markets —particularly in China— present exactly this scenario: sharp discounts after years of pressure.

The Asia-Pacific region hosts the world’s most dynamic economies. However, in 2024, it faces a critical inflection point. Understanding what is happening here is essential for any investor seeking global diversification.

The Chinese Market Collapse: Numbers That Speak

Chinese stock markets have experienced a severe correction since 2021. Shanghai, Hong Kong, and Shenzhen have seen approximately $6 trillion in market capitalization evaporate from their highs three years ago.

The numbers are compelling:

• China A50 Index: down 44.01%
• Hang Seng Index: down 47.13%
• Shenzhen 100 Index: down 51.56%

This debacle is no coincidence. Multiple factors converge: the abrupt dismantling of the Zero-COVID policy, stricter regulations on the tech sector, the real estate crisis (the pillar of China’s economy), contraction of global demand, and the trade war with the United States, especially in high-end semiconductors.

The result: China shifted from a double-digit growth engine to a decelerating economy. Foreign direct investment declines, while manufacturing shifts toward India, Indonesia, and Vietnam. Additionally, demographic aging and low birth rates threaten to compress the labor market in the coming decades.

Stimulus Measures: Are They Sufficient?

Chinese monetary authorities are responding. The PBOC (central bank) reduced the Reserve Requirement Ratio by 50 basis points, injecting 1 trillion yuan ($139.45 billion) into the system.

But the most potentially impactful measure is still under negotiation: a bailout package of 2 trillion yuan ($278.90 billion). These funds would come from offshore accounts of state-owned enterprises and would be used for direct stock purchases to counteract the massive sell-off we have witnessed.

Meanwhile, the one-year lending rate has remained at historic lows since late 2021, currently at 3.45%.

Q4 2023 economic growth was 5.2%: below expectations and far from the dynamism of previous decades. Deflationary effects persist, indicating a contraction in domestic consumption.

The question remains: will these measures arrive in time and with enough magnitude? For now, the rest of Asian markets remain watchful of the results.

Map of Asian Markets: Size and Distribution

Asia hosts the world’s second-largest capital markets after the United States. The region contains both developed and rapidly expanding emerging economies.

Shanghai leads the region: its stock exchange valued at $7.357 trillion in 2023, making it Asia’s most important marketplace. Followed by Tokyo (Japan) with $5.586 trillion, Shenzhen with $4.934 trillion, and Hong Kong with $4.567 trillion.

Together, these three Chinese exchanges total $16.9 trillion in market capitalization: a monumental figure reflecting the country’s economic scale, though in retreat relative to its potential.

India, the fifth-largest economy globally, offers exposure through its Bombay Stock Exchange, with over 5,500 listed companies. South Korea, Australia, Taiwan, Singapore, and New Zealand represent the developed segment of the region. Then there are the emerging markets of Indonesia, Thailand, the Philippines, Vietnam, and Malaysia, which are accelerating their development.

Global context: the United States continues to dominate overwhelmingly. By 2022, it accounted for 58.4% of all global market capitalization. Japan, China, and Australia combined accounted for just 12.2%. However, remember that Japan once held 40% of the global market in 1989 — more than the United States — before its long decline. Current figures should be viewed as part of broader cycles.

Operating Hours: Navigating Time Zones

To invest effectively in Asian markets, it is crucial to understand when to operate. If you are in Madrid (Spain), consider these time zone realities:

Key time differences:

• Tokyo (GMT+9): 8 hours ahead of Madrid
• Shanghai, Shenzhen, Hong Kong (GMT+8): 7 hours ahead

If you want to trade these markets in real-time from Spain, you should be active between 1:00 a.m. (when the first market opens) and 9:00 a.m. (when the last closes).

The “Asian overlap” —the window when multiple markets operate simultaneously— occurs between 2:30 a.m. and 8:00 a.m. This period is critical: it offers optimal volume and liquidity for trading stocks and derivatives (futures, CFDs).

There are also European and American overlaps, each with trading opportunities based on significant transaction volume.

Technical Analysis of Major Indices

China A50: downward trend without break

The index tracking the 50 largest A-shares in Shanghai and Shenzhen has maintained a downward trend since February 2021, when it reached $20,603.10.

It is currently trading at $11,160.60, 9.6% below its 50-week exponential moving average ($12,232.90). The attempt to break higher in July 2023 failed. The Relative Strength Index (RSI) fluctuates weakly in a bearish consolidation zone, below the mid-level of 50.

Key supports to watch:

• $8,343.90 (August 2015 lows)
• $10,169.20 (December 2018 lows)
• $12,288.00 (near support)

For a bullish reversal, you need: sustained break above the moving average, a positive slope change in the moving average, and RSI moving upward from its mid-zone.

Hang Seng: parallels with A50

This Hong Kong index, covering 65% of the total market capitalization with over 80 multi-sector companies, shows similar dynamics to the A50.

It trades at HK$16,077.25, also below both its trendline and its 50-week moving average. RSI remains in a bearish territory.

Relevant resistances and supports:

• Support: HK$10,676.29
• Near resistance: HK$18,278.80
• Distant resistance: HK$24,988.57 (requires significant changes in the Chinese economy)

Shenzhen 100: the steepest decline

This index of the top 100 Shenzhen A-shares has fallen from its all-time high of ¥8,234.00 (February 2021) to ¥3,838.76 currently: 16.8% below its 50-week average.

The RSI nearly hits the oversold zone (30), indicating extreme selling pressure.

Critical levels:

• Major support: ¥2,902.32 (December 2018 lows)
• Major resistance: ¥4,534.22 (November 2010 highs)

Structural Challenges Facing the Region

Asian markets are not only dealing with economic cycles but also systemic challenges:

Geopolitical instability: The region is a hotspot for tensions: Korean Peninsula, South China Sea, Taiwan Strait, India-China border. Any escalation would impact stability and cooperation. The role of the United States as ally and trading partner is central.

Growth slowdown: China will moderate its expansion, causing secondary effects on economies dependent on trade, investment, and tourism with China. The region is still recovering from the pandemic impact.

Accelerated demographic transition: Aging, rapid urbanization, migration, and changing youth roles exert pressure on social security, environment, labor availability, and skills development.

Climate change: The region is vulnerable to extreme events, biodiversity loss, and food insecurity. It also accounts for about half of global greenhouse gas emissions. Balancing development with sustainability is imperative.

How to Participate: Direct and Indirect Options

Direct stock purchase: You can buy shares of Chinese companies listed on Western exchanges via ADRs (American Depositary Receipts). E-commerce giants like Alibaba, JD.com, Pinduoduo, vehicle manufacturers like BYD, and tech firms like Tencent offer unrestricted access.

Major Chinese companies compete at scale with Western giants. Walmart and Amazon led global revenues ($611 billion and $514 billion in 2022), but State Grid (Chinese utility) recorded $530 billion. Companies like JD.com ($156 billion in revenue, founded in 1998) demonstrate options for dynamic growth.

However, buying shares of Chinese state-owned enterprises faces restrictions for retail foreign investors.

Via derivatives: If you prefer to speculate without owning the underlying asset, Contracts for Difference (CFD) allow exposure to Asian indices, stocks, and commodities through regulated platforms. This offers flexibility and leverage, but also proportional risks.

Conclusion: The Key Is in Stimulus

Chinese stocks are going through tough times. Valuations are depressed, indices are in a downtrend, sentiment is eroded.

But that is precisely where the latent opportunity lies.

If China’s economy manages to rebound with genuine stimulus policies —monetary, fiscal, and regulatory—, Asian markets could experience significant reversals. Valuation multiples are compressed. The reward-to-risk margin is favorable.

Your strategy should focus on constant monitoring: PBOC announcements on liquidity measures, the feasibility of the bailout package, economic activity data, and signs of regulatory stabilization in the tech sector.

In 2024, Asian markets will be a crucial testing ground for investors seeking capital appreciation. The question is not whether opportunities will arise, but whether you will be prepared to identify and act when they do.