Investment opportunities in Asian financial markets: The time is now

Why Asian financial markets deserve your attention in 2024

When Benjamin Graham, the father of fundamental analysis, stated that stocks are less dangerous as they fall in price, he was defining the essence of the contracíclico investor. Today, that principle takes on special relevance in Asia. Asian financial markets, particularly Chinese ones, are in a phase of significant depreciation that opens unprecedented windows of opportunity for those who know how to wait.

The question is not whether to invest in Asia, but when to do it. And the answer might be closer than you think.

The outlook: how we got here

Over the past three years, Asian financial markets have experienced a brutal correction. The combined market capitalization of the three main Chinese exchanges — Shanghai, Hong Kong, and Shenzhen — has shrunk by approximately 6 trillion dollars since their 2021 highs. This figure, although alarming, only tells a complete story when you understand its causes.

The collapse was not an accident. It was the confluence of multiple factors that aligned unfavorably: the Zero Covid policy proved to be a devastating economic burden, regulatory restrictions on the tech sector paralyzed innovation, the real estate market — the backbone of the Chinese economy — entered a deep crisis, and the trade rivalry with the United States closed critical export markets.

Performance figures of the main indices say it all. The China A50 fell 44.01%, the Hang Seng 47.13%, and the Shenzhen 100 lost more than 51% since late 2021. These declines reflect not only cyclical problems but also structural challenges that the Chinese economy must resolve.

The current situation: late but necessary reforms

Chinese growth slowed to 5.2% in Q4 2023, a number that would have been celebrated in any other context but remains insufficient by Asian standards. Authorities have finally reacted.

The People’s Bank of China (PBOC) announced reductions in the Reserve Requirement Ratio, releasing approximately 1 trillion yuan (139.45 billion dollars) to inject liquidity into the system. Even more ambitious is the market rescue package under consideration: 2 trillion yuan (278.90 billion dollars) allocated for strategic stock purchases to counteract mass selling.

Meanwhile, the preferred credit rate has remained at historic lows since late 2021, reaching 3.45%. These measures point in the right direction, though their effectiveness will depend on broader coordination among monetary, fiscal, and regulatory policies.

Asian financial markets: beyond China

Although China takes center stage, Asian financial markets are infinitely richer and more diversified. The Shanghai stock exchange leads the region with a market cap of 7.357 trillion dollars, but Tokyo (5.586 trillion), Shenzhen (4.934 trillion), and Hong Kong (4.567 trillion) remain relevant. Together, these three Chinese markets total 16.9 trillion dollars.

India, the fifth-largest economy worldwide, is emerging as a growing alternative with its Bombay Stock Exchange offering access to over 5,500 companies. South Korea, Taiwan, Singapore, and Australia complement a sophisticated ecosystem of Asian financial markets. Emerging markets like Indonesia, Thailand, Vietnam, and the Philippines promise growth rates higher than their developed peers.

However, the United States maintains its undisputed hegemony. With 58.4% of the global capital market in 2022, U.S. dominance is the result of decades of growth and institutional stability. The main Asian financial markets — Japan, China, and Australia — account for just 12.2%, though these figures should be interpreted recognizing that Japan held 40% in 1989.

Operating hours: leverage the Asian overlap

For European investors operating from Madrid, timing requires precision. Tokyo is at GMT+9 (8 hours ahead), and Shanghai, Shenzhen, and Hong Kong are at GMT+8 (7 hours ahead).

If you want to operate these markets in real-time from Madrid, you should be active between 1:00 a.m. — when the first market opens — and 9:00 a.m., when the last closes. The “Asian overlap” occurs between 2:30 a.m. and 8:00 a.m., a period that concentrates maximum volume and liquidity.

This overlap is crucial. It’s not just a time window; it’s where the largest movements of Asian financial markets converge, offering significant opportunities for traders and investors from other regions.

Technical analysis of the main indices

China A50: downtrend but with signs of change

The China A50 index tracks the 50 largest stocks from Shanghai and Shenzhen. Since its all-time high of 20,603.10 dollars in February 2021, it has been in a sustained downtrend. It currently trades at 11,160.60 dollars, 9.6% below its 50-week exponential moving average (12,232.90 dollars).

The Relative Strength Index (RSI) fluctuates in bearish consolidation, below the mid-zone (50). To confirm a trend reversal, we need to see a sustained break above the moving average accompanied by an RSI rising toward the overbought zone.

Critical levels to watch: 8,343.90 dollars (August 2015 lows), 10,169.20 dollars (December 2018 lows) as main supports, and 15,435.50 dollars (May 2015 highs) as resistance.

Hang Seng: regional mirror of China A50

The Hang Seng, which includes over 80 companies representing 65% of Hong Kong’s market cap, reflects similar dynamics. It trades at 16,077.25 HK$, with risk of falling toward 10,676.29 HK$ if it fails to hold levels. Critical resistances are at 18,278.80 HK$ and 24,988.57 HK$.

Shenzhen 100: maximalist pressure in the short term

The top 100 Shenzhen stocks trade at 3,838.76 yuan, 16.8% below their 50-week average. The RSI is nearly oversold (30), suggesting potential for a short-term technical rebound. Key supports: 2,902.32 yuan (December 2018 lows) and resistance at 4,534.22 yuan.

Structural challenges of Asian financial markets

Beyond China, the region faces four major challenges that will influence future market performance:

Volatile geopolitics: The Korean Peninsula, South China Sea, Taiwan Strait, and Indo-China border are potential flashpoints. The role of the U.S. as a strategic ally amplifies these uncertainties.

Accelerated demographic transition: Population aging, especially in China and Japan, will pressure social security, the labor market, and future productivity.

Environmental pressures: Asia accounts for about half of global greenhouse gas emissions. The region must balance growth with energy sustainability.

Dependence on global trade: Global economic slowdown directly impacts Asian exports, limiting regional growth.

Investment strategy: stocks versus derivatives

Direct purchase of Chinese stocks

If you seek real corporate ownership, major Chinese companies are listed on Western exchanges via ADRs (American Depositary Receipts). JD.com (156 billion dollars in revenue 2022), Alibaba, Tencent, Pinduoduo, Vipshop, and vehicle manufacturer BYD are accessible options. However, companies like State Grid (530 billion in revenue), China National Petroleum, and Sinopec face restrictions for foreign retail investors.

Derivatives: flexibility without ownership

CFDs (Contracts for Difference) allow speculation on index and stock movements without acquiring the underlying asset. This mode is especially useful for traders seeking to leverage the volatility of Asian markets without long-term commitments.

The key: monitor stimulus measures

At this moment, the most critical variable is the effectiveness of the stimulus measures announced by Chinese authorities. If these policies succeed in reigniting domestic demand, restoring business confidence, and halting the deflation currently affecting the economy, Asian financial markets could begin a sustained recovery.

Until then, maintain constant vigilance on monetary, fiscal, and regulatory policy announcements. That is the compass that should guide your investment decisions in Asia.