Opportunities in the Asian Stock Market: Technical Analysis and Investment Outlook 2024

Asian financial markets are experiencing a turning point that demands careful attention from sophisticated investors. The significant decline in regional stock market capitalizations has created a scenario where valuations are potentially attractive, especially when considering historical economic recovery cycles.

The current portrait of the Asian stock market: Numbers that speak

Since early 2021 to today, Asian markets have experienced deep corrections. The combined capitalization of Shanghai, Hong Kong, and Shenzhen has lost approximately 6 trillion dollars, reflecting an adjustment that directly impacts the portfolios of global investors.

The specific outlook by stock exchange is revealing:

• Shanghai Stock Exchange: down 44.01%
• Hang Seng Index: down 47.13%
• Shenzhen Stock Exchange: down 51.56%

These movements respond to converging factors: the end of the Zero-COVID policy, regulatory pressures on the tech sector, structural difficulties in the real estate market, weakened external demand, and US trade restrictions on high-end semiconductors.

Stimulus measures: Are they enough to boost the Asian stock market?

In light of this reality, monetary authorities have activated economic policy responses. The Chinese central bank reduced the Reserve Requirement Ratio by 50 basis points, releasing approximately (139.45 trillion dollars) into the financial system.

More importantly, a stabilization package for the stock market worth (278.90 trillion dollars) is under discussion, financed through offshore funds from state-owned companies, aimed at stock acquisitions to curb the massive sell-offs observed in recent quarters.

The 1-year prime lending rate remains at its historic low of 3.45%, reflecting an accommodative stance since late 2021.

Despite these interventions, economic growth has slowed: China’s economy expanded by 5.2% in Q4 2023, a moderate figure compared to historical standards but below initial projections.

Structure of the main Asian financial markets

The architecture of the Asian stock market is organized around economies of different sizes and levels of development:

China hosts three of the main regional exchanges. Shanghai had a capitalization of $7.357 trillion in 2023, followed by Shenzhen with $4.934 trillion and Hong Kong with $4.567 trillion. Together, Chinese markets totaled $16.9 trillion.

Japan (Tokyo Market) contributes $5.586 trillion, reflecting its position as the second Asian market, although it has ceded leadership to China since the early 2000s.

India, the fifth-largest economy, offers access to over 5,500 companies through its Bombay Stock Exchange.

Complementing this economic landscape are developed economies like South Korea, Australia, Taiwan, Singapore, and New Zealand, along with emerging markets such as Indonesia, Thailand, the Philippines, Vietnam, and Malaysia, which are experiencing variable but sustained expansions in the medium term.

Technical analysis: Reversal signals in the Asian stock market

China A50 Index: Awaiting bullish confirmation

This indicator tracks 50 of the largest-cap stocks listed in Shanghai and Shenzhen. Since its all-time high of $20,603.10 in February 2021, it has maintained a downward trend. It currently trades at $11,160.60, 9.6% below its 50-week exponential moving average (12,232.90 dollars).

The Relative Strength Index fluctuates downward below its mid-zone (50), indicating bearish consolidation. Key technical levels are:

• $8,343.90 (August 2015 lows)
• $10,169.20 (December 2018 lows)
• $15,435.50 (May 2015 highs)
• $12,288.00 (near-term support)

To validate a trend change, a sustained bullish break above the moving average, a change in slope, and RSI in overbought territory are required.

Hang Seng: Similar downward dynamic

Pondering approximately 80 Hong Kong companies by market cap, representing 65% of that exchange’s total capitalization. Currently trading at HK$16,077.25, also below its trendline and 50-week moving average, with RSI in bearish consolidation.

Next minor resistance at HK$18,278.80, while HK$24,988.57 is a long-term target conditioned on substantial improvements in the Chinese economy.

Shenzhen 100: Selling pressure indicator

Tracks 100 main class A Shenzhen stocks, down 16.8% from its all-time high of ¥8,234.00 (February 2021). Currently trading at ¥3,838.76 with RSI near oversold levels (close to 30).

Relevant supports identified:

• ¥2,902.32 (December 2018 lows)
• ¥4,534.22 (November 2010 highs)

Structural challenges of the Asian stock market

The region faces four major challenges that will impact investment trajectories:

Geopolitical instability: Tensions in the Korean Peninsula, South China Sea, Taiwan Strait, and India-China generate uncertainty. The US role as a security ally remains central.

Economic slowdown: Moderate Chinese growth affects trading partners. Post-pandemic recovery remains incomplete.

Demographic transition: Aging populations, accelerated urbanization, and labor market shifts pressure social protection systems, labor availability, and skill requirements.

Climate vulnerability: Exposure to extreme events, biodiversity loss, and food insecurity. The region accounts for approximately 50% of global greenhouse gas emissions.

Global context: Persistent US hegemony

Statistics from 2022 reveal that US markets accounted for 58.4% of global stock market capitalization. Institutional strength and growth trajectory in the 20th century underpin this preeminence, crystallized in the dollar as the dominant reserve currency.

Meanwhile, major Asian markets (Japan, China, Australia) together held 12.2% of the global market. Although this is a significant gap, recalling that Japan reached 40% in 1989 illustrates the volatility of relative positions over extended cycles.

Investment options in the Asian stock market

Direct stocks: Opportunities and limitations

Chinese corporate giants rival Western counterparts in size. State Grid reported revenues of $530 billion (2022), surpassing Walmart (611 billion) and Amazon (514 billion). Companies like China National Petroleum and Sinopec operate at a similar scale.

However, purchasing shares of Chinese state-owned companies faces restrictions for minor foreign investors. More accessible alternatives include:

• JD.com: e-commerce, $156 billion in revenue, traded via ADRs on Western exchanges
• Alibaba: leading e-commerce competitor, easier access
• Tencent, Pinduoduo, Vipshop, BYD: prominent electric vehicle manufacturer

Derivative instruments: Speculation alternative

Contracts for Difference (CFD) offer exposure without acquiring the underlying asset, tradable on specialized platforms in Asian markets. They allow flexible trading without retail investor limitations.

Trading hours and overlap: A practical guide

For European traders, access hours to major markets from Madrid (CET/GMT+1) are:

• Tokyo (GMT+9): 8-hour difference
• Shanghai, Shenzhen, Hong Kong (GMT+8): 7-hour difference

Overlap periods: Between 2:30 a.m. and 8:00 a.m. Madrid time, these four markets operate simultaneously, ensuring volume and liquidity. An optimal period for traders seeking efficient execution.

Summary: Key points for investment decisions in 2024

The Asian stock market presents a paradox: deep corrections generate potentially attractive valuations, but macroeconomic uncertainty limits confirmation of trend reversals.

Interested investors should prioritize monitoring announcements related to monetary stimulus, fiscal policies, and regulatory changes. Improvement in economic activity combined with favorable measures could serve as a decisive catalyst.

Benjamin Graham reminded that intelligent investing recognizes that risk increases when prices rise and decreases when they fall. From this perspective, Asian financial markets offer latent opportunities, conditioned on tangible changes in economic trajectory and technical validation of reversals in monitored indices.

The key lies in strategic patience and rigorous attention to signals confirming a cycle change in this crucial region for the global economy.