Latent Opportunities in the Asian Market: A Practical Guide for 2024

The Asian market is at a crucial juncture. After losing more than $6 trillion in market capitalization since 2021, China’s major stock exchanges face an inflection point that could present attractive buying opportunities for attentive investors.

Benjamin Graham, the father of fundamental analysis, taught that stocks become less risky when their prices fall. From this perspective, the current Asian market shows interesting signals for those seeking to understand where the global economy might head in the coming years.

The current context: What is happening in Asia?

The debate around Asian financial markets centers on the problems China faces and what decisions its authorities will make. The numbers are compelling:

• China A50 Index: down 44.01% since early 2021
• Hang Seng: retreat of 47.13%
• Shenzhen 100: plummeted 51.56%

This bloodletting of value is due to multiple factors: the failure of the Zero-Covid policy, regulatory restrictions on the tech sector, real estate crisis, reduction in global demand, and the trade war with the United States over microprocessors.

The result is clear: China has slowed its growth to single digits. Foreign investment is shifting toward other emerging markets like India, Indonesia, and Vietnam. Simultaneously, demographic aging and low birth rates project a population decline with a direct impact on the labor market.

Stimulus measures: Will they be enough?

The Chinese central bank (PBOC) has reduced the reserve requirement ratio by 50 basis points, releasing approximately $139 billion into the economy. Even more significant, a bailout package of about $278 billion is being discussed, financed with funds from offshore accounts of state-owned enterprises.

Although these liquidity stimuli have been anticipated for months, their late timing and lack of coordination raise doubts about their effectiveness. For now, the rest of the Asian market watches to see if these measures will reverse the contraction.

Asian financial markets: Hierarchy and magnitude

The Asian market includes the region’s leading stock exchanges, characterized by being the most populous and geographically extensive.

Leaders by market capitalization (2023):

Shanghai leads with $7.357 trillion, followed by Tokyo ($5.586 trillion), Shenzhen ($4.934 trillion), and Hong Kong ($4.567 trillion). Together, Chinese markets account for $16.9 trillion.

India, South Korea, Australia, and Taiwan complete the podium of relevant Asian markets. However, this region still remains under U.S. dominance, which holds 58.4% of the global stock market capitalization, while the Asian market accounts for just 12.2%.

Trading hours: Synchronization from anywhere

For those trading from Europe (CET/GMT+1), the overlapping hours of the Asian market occur between 2:30 a.m. and 8:00 a.m., when Shanghai, Shenzhen, Hong Kong, and Tokyo operate simultaneously. This window offers volume and liquidity for stocks and derivatives.

Structural challenges of the Asian market

Four critical challenges define the future of this region:

Geopolitical instability: The Korean Peninsula, South China Sea, and Taiwan Strait are tension points that could escalate into trade or military conflicts.

Economic slowdown: China’s moderate growth will impact economies dependent on its trade and investment. The post-pandemic recovery remains incomplete.

Demographic transition: Population aging, rapid urbanization, and migration generate pressures on social security, the environment, and the labor market.

Climate change: The region suffers from extreme weather events and contributes half of global greenhouse gas emissions.

Technical analysis of major indices

China A50: Remains in a downtrend since February 2021 (high: 20,603 $). Currently trading at 11,160 $, well below its 50-week moving average (12,232 $). The RSI fluctuates in bearish consolidation. To change the trend, a sustained break above the moving average is needed.

Hang Seng: Similar to China A50, trading below its downward trendline and 50-week moving average (16,077 HK$). The next relevant support is at 10,676 HK$, with resistance at 18,278 HK$.

Shenzhen 100: From its all-time high of 8,234 yuan in 2021, it has fallen to 3,838 yuan. The RSI is nearly oversold, with key supports at 2,902 yuan and resistance at 4,534 yuan.

Investment strategies in the Asian market

Direct stocks: Major Chinese corporations like Alibaba and JD.com trade as American Depositary Receipts (ADRs) on Western exchanges. Tech companies, e-commerce, and vehicle manufacturers like BYD offer direct exposure.

However, state-owned enterprises such as State Grid, China National Petroleum, and Sinopec are subject to restrictions for foreign retail investors.

Indirect exposure: Contracts for Difference (CFD) allow speculation on Asian market indices and stocks without owning the underlying asset, operating through specialized platforms.

The key at this moment

Asian market stocks are not in their best period. However, a significant latent opportunity exists if China’s economy improves its activity along with more favorable regulatory policies.

For investors and traders, the critical factor is to continuously monitor announcements regarding monetary, fiscal, and regulatory stimuli. This will be the compass that defines the next move of the Asian market in 2024 and beyond.