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Asian Stock Markets 2016 – How Does the ASX Compare to the Japanese or Chinese Stock Market?

Asian Stock Markets 2016 – How Does the ASX Compare to the Japanese or Chinese Stock Market?
Most Asian markets have recovered in the past three months as investor sentiment improved and various commodities such as crude oil gained.
May 27, 2016 By Simon Herrmann Tags: stocks, Analysis, Asia, Index, Stock Market

Earlier this year financial newspapers reported about the Chinese stock market on a daily basis, but recently many Australian investors have not paid much attention to Shanghai due to a lack of coverage. The Australian Stock Market had a rocky start to the year as well, but volatility eased during the past few months and investors seem to be more comfortable again to invest in Australia. But what is the performance of the remaining major bourses in Asia-Pacific and how does the ASX compare to the Japanese or Chinese Stock market?

As of April 2016 the Tokyo Stock Exchange in Japan is the largest bourse in Asia-Pacific with an approximate market capitalisation of ~US$4.7trillion, followed by the Chinese Stock Market (~US$3.7trillion) and Hong Kong (~US$3trillion).  The Australian Securities Exchange (~$1.1trillion), also known as ASX, ranks fifth place as at May 2016.

2016 in Review: Volatility in Asian markets

The year 2016 started turbulent on Asian bourses as investors witnessed falling stock markets in January and February. It was the worst start to a new year in decades for some markets and reminded investors of the ‘August selloff’ in 2015 or even the GFC in 2008. The selloff was triggered by a combination of factors such as weak Chinese manufacturing data, a sharp devaluation of the renminbi - China’s currency - weak commodity prices and broader concerns about the global economy. At the beginning of the year investors eyed government interference in China, as the Chinese government implemented the so-called ‘circuit breaker’ to halt stock market declines, but it was abandoned again on 8th January. The idea was to suspend trading when markets declined substantially, it appeared, however, that the circuit breaker had a negative impact on a fragile stock market as it caused Chinese markets to close in less than 30 minutes. Investors tried to exit before the market shut, which accelerated selling.

Most Asian markets have recovered in the past three months as investor sentiment improved and various commodities such as crude oil gained.

Asian Stock Markets Year-to-Date: Jan-May 2016

The table below contains some of the largest stock market indices in Asia-Pacific and their respective performance since the beginning of the year. The timeframe ‘year-to-date’ refers to the period 1 January – 26 May 2016.

 

 

Amongst the twelve markets that we are comparing, the SET Composite index in Bangkok, Thailand has been the standout performer in Asia rising 8.5% YTD. The second best performing bourse is the Jakarta Composite situated in Jakarta, Indonesia, up 3.8% for the year. The Australian benchmark index takes the third spot, up 1.3%. The Korean as well as Indian stock markets are essentially flat year-to-date.

The bottom of the list contains the markets of China, Japan and Hong Kong, however the Chinese indices are by far the weakest link in Asia. The Shanghai Composite is down 21.2% while the Shenzhen has lost 23.4% of its value between January and May 2016.

12 Month Performance: May 2015 – May 2016

While the year-to-date comparison shows mixed market performances across Asia, maybe a longer timeframe will give us further clues?

The table below contains the same Asian-Pacific markets as listed above, however the list is sorted by their respective performance over a whole year. The timeframe ’12 months’ refers to the period 26 May 2015 – 26 May 2016.

 

 

All major Asian bourses have experienced stock price declines during the past 12 months as losses range from 6% to as high as 43%.

The Bombay Stock Exchange (India) is the best performing stock market in Asia-Pacific during the past 12 months, down just 6%. The SET Composite in Bangkok, Thailand is down 6.7% during the same period and takes the second spot, followed by Australia and Malaysia. The Japanese Nikkei is down 17.7% and the Hang Seng (Hong Kong) more than 28%. The Shanghai Composite index in Shanghai (China) has lost more than 43% of its value in the past 12 months.

Conclusions and Observations

It appears that India’s financial markets may benefit from the turmoil in China’s financial system, as international investors pull out of China and Hong Kong and pour money into India. Current projections show that India may grow at a faster rate than China over the upcoming two financial years, which makes India an attractive place to invest. It appears that investors believe that India is somewhat insulated from a slowdown in China, compared to other emerging countries such as Brazil or Korea.  

Asia’s largest stock market, Tokyo, has underperformed other Asian markets as the country battles with an ageing population, deflationary pressure and massive government debt. The Bank of Japan is desperately trying to combat sluggish growth with loose monetary policy, which involves negative interest rates and the asset-buying program known as ‘quantitative and qualitative easing’.

In the context of international markets, Australia has done considerably well during the past 12 months and especially well in 2016. Economic data as well as company earnings have been somewhat stable this year, with the exception of resource and energy companies. Following the interest rate cut of the Reserve Bank of Australia (RBA), the stock market remains an attractive alternative for financial diversification.

However, if you want to find out if you should ‘Sell in May and go away’, please read Wise-owl’s analysis on seasonal investing.

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Simon Herrmann Author: Simon Herrmann May 27, 2016

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

ASX & IPO Review for Q1 2017

The first three months of 2017 were characterised by low volatility and overall bullish sentiment. After a 4.2% gain during the fourth quarter of 2016, favourable market conditions on the ASX were sustained during the first quarter of 2017.

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