Asian Stocks Fall, Thailand Mulls Rate Cut to Boost Economy
Last week, most Asian stock markets declined. Analysts attribute this to the unease caused by the intensification of conflicts in the Middle East.
As of last Friday's close, the Nikkei 225 index fell 1193.94 points or 3% for the week, closing at 38,635.62 points. The South Korean Kospi index fell 80.09 points or 3.02% for the week, closing at 2,569.71 points. Australia's S&P/ASX 200 index fell 62.02 points or 0.76% for the week, closing at 8,150 points.
Southeast Asian stock markets also retreated. As of last Friday, Indonesia's Jakarta Composite Index (JKSE) fell 2.61% or 200.83 points for the week, closing at 7,496.09 points; Malaysia's Kuala Lumpur Composite Index fell 1.1% last week, closing at 1,629.97 points; Singapore's Straits Times Index rose 0.44% or 15.77 points for the week, closing at 3,589.13 points; the Philippine Manila Index reported 7,467.92 points, up 0.53% for the week; Thailand's SET Index fell slightly by 0.41% for the week, closing at 1,444.25 points; Vietnam's Ho Chi Minh Index fell 1.57% for the week, closing at 1,270.6 points. The MSCI Asia-Pacific Index (excluding Japan) fell 0.35%, and analysts predict that the MSCI will not change significantly this week as a whole.
Recently, stock markets in the Asia-Pacific region (excluding China) have shown signs of correction. Market analysis has noticed that last week, the stock markets of South Korea, Indonesia, Malaysia, and Thailand experienced net outflows. Nevertheless, many analyses remain optimistic about Southeast Asian stock markets, as the Federal Reserve is expected to enter a rate-cutting cycle, which is beneficial for emerging market bond investments, especially in Asia, where capital inflows will further heat up the Asian bond market.
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Southeast Asia's economy remains resilient, and the stock market is still看好
Last week, due to the escalation of conflicts in the Middle East, Asian markets felt a chill.
However, for now, many analyses remain optimistic about Southeast Asian stock markets. Ni Shuhui, a research assistant at the Institute of International Finance of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, said in an interview with 21st Century Economic Report that the economic growth potential and policies in the Southeast Asian region are the long-term support for the rise of the region's stock markets. Amid global economic turmoil, high inflationary pressures in Europe and the United States, and complex geopolitical situations, the Southeast Asian market, with its young population, low costs, gradually improving infrastructure, and loose fiscal policies, steadily takes over the production capacity under the reconstruction of the global supply chain, causing international capital to continue flowing to the region.
A report from global management consulting firm McKinsey shows that in the second quarter of 2024, Southeast Asian economies will remain resilient, and economic performance will remain stable. All economies in the region achieved GDP growth, with Vietnam, Malaysia, the Philippines, and Thailand achieving the highest annual growth rates in the past four quarters. Among them, Vietnam, which has outstanding economic growth performance, benefits from the growth of industry and services. McKinsey predicts that as global demand gradually recovers, the export industry will continue to grow, driven by industries such as smartphones, electronics, and textiles.Under the expectation of the Federal Reserve starting a continuous interest rate cut, Southeast Asian countries have followed suit with interest rate cuts and reserve requirement reductions. Sonal Varma, Chief Economist for Asia and India (excluding Japan) at Nomura, told reporters from 21st Century Economic Report that the Philippines and Indonesia have already lowered their policy interest rates, and these two countries may further reduce interest rates. It is expected that by the end of 2025, the Central Bank of the Philippines will lower the policy interest rate by 125 basis points, and the Central Bank of Indonesia will cut interest rates by another 100 basis points.
Following the interest rate cuts implemented by the Philippines and Indonesia, last week, after a meeting with the Governor of the Bank of Thailand, Arkhom Termpittayapaisith, the Thai Finance Minister, Uttama Savanayana, stated that the Bank of Thailand will consider lowering interest rates. Uttama indicated that reducing interest rates will help alleviate the burden on borrowers and support financing channels. The Thai Ministry of Finance has proposed raising the inflation target for next year to between 1.5% and 3.5%, creating more room for the Bank of Thailand to cut interest rates.
However, some central banks may not choose to lower interest rates. Sonal said the main reason is that these countries still have relatively high inflation levels, strong demand, or interest rates were not significantly raised during the previous interest rate hike cycle. She expects Malaysia to keep interest rates unchanged this year and next year.
Zhang Haoen, Head of Personal and Business Banking Investment at China CITIC Bank International, said that the Federal Reserve entering an interest rate cut cycle is beneficial for emerging market bond investments, especially in Asia, where capital inflows will further heat up the Asian bond market. Among them, countries with good economic fundamentals and sufficient foreign exchange reserves, such as Vietnam, may become the preferred choice for investors.
Japanese and Korean stock markets lead the decline
Looking at last week, in the Asia-Pacific stock markets, the Japanese and Korean stock markets experienced particularly severe declines.
Some market analysts believe that the fluctuations in the Nikkei index last week were influenced by investors weighing regional tensions with the prospects of domestic interest rates in Japan.
On October 2, after a meeting with the Governor of the Bank of Japan, Haruhiko Kuroda, the newly appointed Prime Minister of Japan, Fumio Kishida, stated that Japan currently does not have an environment for further interest rate hikes. He told Haruhiko Kuroda that he expects the economy to sustainably develop while maintaining the current loose trend, and the economy will continue to develop towards overcoming deflation. The Bank of Japan's dovish signals triggered fluctuations in the yen's exchange rate against the US dollar, with a drop of up to 3.5% last week.Despite recent fluctuations in the Japanese stock market, market analysis remains optimistic about the trend of Japanese stocks. Liu Jiahao, head of the Investment Strategy Department at Standard Chartered Bank's Wealth Management, pointed out that, apart from the impact of short-term news factors, the risk of a significant decline in Japanese stocks this year is relatively small. In the short term, they are mainly influenced by international funds, which are not bearish on the profitability of Japanese companies but are concerned about the exchange rate losses brought about by the depreciation of the yen. When the appreciation range of the yen is over and the exchange rate risk is reduced, international funds may flow back into Japanese stocks, and the Nikkei 225 index is expected to return to 40,000 points.
On the other hand, due to South Korea's steady earnings growth and the potential for monetary policy easing in the near future, Goldman Sachs strategists recommend going long on South Korea's Kospi index. From the perspective of economic fundamentals, South Korea's inflation has cooled, supporting the South Korean central bank's interest rate cut in October. Data shows that South Korea's CPI year-on-year growth rate in September fell to 1.6%, dropping below 2% for the first time since the beginning of 2021.
Economists Suktae Oh and Kiyong Seong from Societe Generale wrote in a report that by the end of 2025, the Bank of Korea may lower its policy interest rate by 100 basis points to 2.50%. They expect the Bank of Korea to cut interest rates by 25 basis points at the meeting on October 11, ending the long-term situation of maintaining interest rates at a 15-year high of 3.50%. They pointed out that the continuous downward risk of South Korea's economic growth and moderate inflation support the Bank of Korea to start easing monetary policy and move towards the generally accepted neutral interest rate of 2.50%.
The stock markets of Asia-Pacific economies are also highly regarded by the market due to these countries' outstanding performance in fields such as artificial intelligence. Sonal told reporters that the first is the continuous investment in the field of artificial intelligence, especially in Asia, such as South Korea being the center of high-bandwidth memory chips. This field has shown export growth, rising memory prices, and increased investment related to AI. South Korea is likely to gain significantly from these developments.
The second trend is the diversification of supply chains, with some supply chains currently shifting towards certain emerging economies in the region. Nomura's research shows that India, Vietnam, and Malaysia have particularly benefited from this trend. In these countries, specific industries are experiencing growth. For example, in India and Malaysia, the electronics and semiconductor industries are the main beneficiaries. In the semiconductor field, India mainly sees growth in assembly and testing, while Malaysia benefits from data cloud services and a broader semiconductor value chain. As for Vietnam, Vietnam has benefited from the electronics and automotive industries for many years and continues to maintain advantages in these areas.
The third trend is infrastructure construction, which is also an important focus for emerging Asian economies as these countries strive to improve the business environment. Countries like India, Indonesia, and the Philippines are vigorously promoting infrastructure development, especially in areas such as roads, ports, and bridges. A large part of this infrastructure construction is driven by public spending, but there will also be significant private sector participation in the future.
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