The Japanese stock exchange shines brighter than other Asian markets

Equity markets began the year cautiously after a very positive 2023 in virtually all asset classes. This week has been marked by investors' adaptation to a “more realistic” macroeconomic scenario.

"It's not that it's very different, but it does make sense that the rate cuts factored into prices were more moderate. This is good in the long-term, because it indicates that the economic situation isn’t so bad," explains Alberto Matellán, chief economist at MAPFRE Inversión.

These corrections at the beginning of the year are evident in all economic areas, including Asia, where growth in China for 2023 was 5.2%, two tenths above the 5% target set by investors, who haven’t reacted well to the data, following the slowdown in the Chinese economy in the fourth quarter. The Hong Kong exchange’s Hang Seng index gave up 3.7% on Wednesday.

"It’s normal for this data to be extrapolated out to the future and for investors to think that this year will be worse than expected, as was the fourth quarter. But that’s not necessarily the case. What interests us as investors is knowing that China will enjoy weaker growth than it did in the past," says Matellán.

In any case, there are still reasons to think that the year ahead may be better than expected: various government incentives will kick in and liquidity will be boosted if rates are lowered in the US. “There is still a positive bias for China, without losing sight of the fact that growth will be lower than in the past,” he said.

However, the situation is very different in Japan, a market that is gaining in investor appeal. One of the advantages is the attractive exchange rate. "The Japanese exchange rate has been falling for many decades, but within that trend, it’s gone beyond what is reasonable in relation to macroeconomic circumstances and investors have taken the opportunity to load up on the currency," the chief economist at MAPFRE Inversión noted.

Japan also follows a different monetary policy than the other main markets, with negative interest rates at -0.1% and much lower inflation, due to structural reasons and greater productive investment. "These factors put the country in a competitive situation that’s decidedly better than that of other Asian competitors. Japan’s outlook is quite positive and right now, it's a fairly attractive market," Matellán says.

Inflation on the rebound in the eurozone

This week also saw the publication of eurozone inflation data, which came in at 2.9%. "This data reveals something that was expected by economists, but that the market didn’t want to see: inflation is slowing down, but slowly and is trending toward stabilization in areas that we would still consider as having high inflation. Inflation forecasts for developed economies as a whole are around 2.7% on average," says Matellán.

These areas would not be considered “compatible” with the rate cuts expected by the market, and that “could be dangerous.” “The data isn’t alarming, but it must be borne in mind that inflation can remain elevated in high areas,” he explains.

Good corporate earnings

Companies are generally performing well, in line with macroeconomic data. Technology remains at the center, although the chief economist at MAPFRE Inversión insists that investors need to be prudent.

In Europe, the consumption sector has the worst figures. "The consumption sector is interesting because its macroeconomic indicators are solid, and growth prospects in Europe have only fallen in recent months. In Europe, the focus of the problem is on consumption. The impact of rising rates that we’ve seen in recent months has become evident in consumption, income and consumer confidence, but it hasn’t affected employment for the time being," he said.