Fueled by enthusiasm for artificial intelligence, Taiwan’s stock market has emerged as the top performer in the Asia-Pacific region in the first half of 2024.
The Taiwan Weighted Index has surged 28% this year, driven by stocks connected to the AI sector.
Taiwan Semiconductor Manufacturing Corp, a heavyweight in the industry, saw its shares climb 63% in the first six months, while its competitor Foxconn, traded as Hon Hai Precision Industry, soared by 105% over the same period.
The AI investment boom is stimulating global economic activity, with its impact extending to sectors like industrials, materials, and utilities.
Japan’s Nikkei 225 index ranks second in the region, having repeatedly surpassed historical highs this year. The Nikkei gained approximately 18% in the first half of 2024.
The index broke a 34-year record in February, exceeding its previous all-time high of 38,915.87, set on December 29, 1989. It subsequently crossed the 40,000 threshold and achieved a new all-time closing high of 40,888.43 on March 22.
Despite Taiwan’s lead, analysts suggest Japan could be the favored market moving forward. Improved corporate governance standards are significantly enhancing company performance in the world’s fourth-largest economy.
A June 14 note from Ben Powell, chief APAC investment strategist at the BlackRock Investment Institute, indicated that the Bank of Japan is increasingly confident in meeting its inflation targets. This confidence could lead to a gradual normalization of monetary policy.
Powell highlighted Japan’s favorable macroeconomic environment for risk assets. “We remain overweight on Japanese equities, driven by strong corporate reform momentum, healthy earnings, and the valuation support from still-negative real interest rates.”
While most Asian markets have shown positive performance year-to-date, three markets — Thailand, Indonesia, and the Philippines — have fallen into negative territory.
Thailand’s SET Index declined by 8% in the first half of the year, marking it as the worst-performing index in the region. The Jakarta Composite dropped by 2.88%, and the Philippine Stock Exchange Index decreased by about 0.6% over the same period.
Central Banks Eye the Federal Reserve
Many central banks in Asia are closely monitoring the Federal Reserve’s actions, as their monetary policy decisions often align with those of the U.S. central bank.
The Fed hinted at several rate cuts toward the end of 2023. However, the latest “dot plot” from the Fed’s May meeting projected only one cut of 25 basis points for the remainder of 2024. This marks a significant shift from the March projection, which anticipated a 75-basis-point reduction in 2024.
The dot plot visually represents each FOMC member’s interest rate projections for the bank’s short-term rates at future points.
The Fed has outlined a more aggressive path for tightening monetary policy in 2025, forecasting four cuts of 25 basis points each.
Expectations for rate cuts have been repeatedly delayed due to persistent inflation. Higher employment and wage growth in the U.S. have also contributed to the view that there is no immediate need for the Fed to lower rates.
