Global recovery to push up US and Asia stocks

World
Europe

Where will the markets go in 2018? Analysts say American stocks are expected to maintain their leading position, while emerging markets in Asia will become the next hot spots for investment.

In the US, the S&P 500 Index recorded one of its highest profits this year, thanks to favorable policies and promise of impending tax cuts. Most institutions predict the index will pass the 2,800 mark next year, with Morgan Stanley posting the highest projection of 3000.

US President Donald Trump speaks about the passage of tax reform legislation on the South Lawn of the White House in Washington, DC, December 20, 2017. /VCG Photo

Data from MSCI shows that the overall equity market in Asia grew 29 percent year-on-year between January and November this year, seven percent higher than the global average. A weak US dollar and ongoing economic reforms will continue to boost regional markets' value next year.

Southeast Asian exchanges exploded with activity in 2017. More than 150 companies went public and raised about 8.9 billion US dollars, a 40 percent increase compared to last year.

That also saw the highest amount of funds raised in four years, backed by strong GDP growth in each of the Southeast Asian economies, according to Deloitte’s report on Southeast Asia’s IPO market in 2017.

Hong Kong's stock market has been one of the best performers of the year, up more than 30 percent since the beginning of January. The global bull rally and positive signs from the Chinese economy bolstered sentiment, driving the total value of the Hang Seng up to a ten year high.

On top of that are the successes of Hong Kong's Stock Connect and Bond Connect programs with Shanghai and Shenzhen.

The Stock Connect schemes enabled over a trillion US dollars in shares to move between Hong Kong and the Chinese mainland since their launch.

This year, foreign investors were allowed access to an estimated nine-trillion-US dollars' worth of the mainland’s bond market through Hong Kong.

The Hong Kong stock exchange is also trying to keep pace with modern markets this year – its 31-year-old trading floor closed in October, with online automated trading systems taking over.

As for the Chinese mainland, world leading asset manager BlackRock said stocks from traditional sectors, such as energy, material and financing, are expected to see fast growth, but tech stocks will see slow expansion as they are already overvalued.

However, since the Chinese leadership is promoting an innovation-led economy, many analysts are positive about companies focusing on cutting-edge technologies, including artificial intelligence, 5G network and semiconductor chips.

Hong Hao, Chief China Strategist at BOCOM International, said making money from China’s A-share market will be harder next year, as investors are going to deal with a “shrinking pool of liquidity” caused by rate hikes, and much more expensive large-cap stocks.

China’s deleveraging efforts and money supply curbs limited the amount of money going into the stock market in 2017. Therefore, investors have to allocate that money properly to get the best gain, which led many large-cap companies to outperform smaller cap companies.

“Some large-cap stocks have been bid up so high, so we don’t have low-valuation candidates anymore,” Hong said.

Wang Jianhui, General Manager of the R&D department of Capital Securities, said that tougher regulations on China’s financial sector have been and will keep limiting A-share performances, but the structure of China’s stock market is becoming healthier.

(Joel Flynn, Du Zhongyan and Miro Lu contributed to the story)