Rising geopolitical tensions and interest rate hikes grabbed headlines in 2023. Despite this, stock markets climbed through most of the year. The new year promises to be equally exciting, considering the nail-biting start with the Red Sea crisis sending oil prices higher, expectations of interest rate cuts by major central banks around the world and elections in over 40 countries, including the US in November.

USA

Being the world’s largest, the US stock markets will remain in focus in 2024 and impact the global equity markets. After all, the NYSE (New York Stock Exchange), with a capitalisation of over $25 trillion, is the largest, closely followed by the NASDAQ. Following the outperformance of US stock indices in 2023, valuations are stretched, with forward P/E multiple at around 20.5 (higher than the Rule of 20). Despite this, there seems to be room for upside this year, with easing inflation, the Fed beginning its monetary easing and AI investments starting to bear fruit. The sentiment for US stocks is largely positive, as can be seen on Acuity’s AssetIQ widget.

Asia-Pacific

While geopolitics and geoeconomics will continue to impact financial markets throughout the year, the Asia-Pacific region is expected to demonstrate significant growth. It remains attractive for investors with rapidly developing emerging economies. Here's a look at the most promising stock markets. 

Australia

With single digit returns, the Australian stock market underperformed most markets. Despite the current undervaluation (forward P/E multiples of around 14), the Australian stock markets could remain highly volatile in 2024, drawing the focus of intraday traders looking for attractive opportunities.  

Australia's economic growth decelerated in 2023 and any news of an acceleration will be front and centre for investors in 2024. As will an acceleration in China’s GDP growth, which stuttered to the slowest pace in three decades last year. Growth in the Chinese economy will also lend support to the Australian stock market. 

The strengthening of the AUD versus the USD, with the Fed planning interest rate cuts and the RBA adopting a “higher for longer” stance, could help Australian companies, making imports less expensive. 

The resources and industrial sectors will likely outperform the growth sector in 2024, helping the ASX 200 breach 8,000 by year-end.

Japan

Japanese stocks rallied last year, taking the Nikkei 225 higher by 28%, the highest gains in a decade. Regulatory reforms in Japan’s capital markets, including the delisting for firms that have inefficient capital allocation and preventing cross-shareholdings (firms owning shares in their business partners), bode well for equity markets in 2024. The country's political and social stability also set a positive backdrop. 

The Japanese yen was the worst performing among the world’s top 10 currencies in 2023. This made Japanese stocks more attractive for foreign investors. The main risk to Japanese stocks in 2024 will be the strengthening of the yen, with the Bank of Japan expected to end its ultra-easy monetary policy. The BoJ raising interest rates will also increase the cost of borrowing for companies. Another risk to watch in 2024 will be natural disasters, like the recent earthquake and Tsunami news. 

Warren Buffett has recently increased his stake in 5 Japanese companies, namely Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo. This has piqued the interest of institutional investors, which should add to the bullish sentiment.

Emerging Markets

The stock markets of emerging economies, like Taiwan, Vietnam, and India, could benefit from the Fed's interest rate cuts, as investors divest their US assets. Most of the emerging economies are part of APAC, a region that is likely to continue exhibiting resilience in 2024.

Taiwan

Taiwan’s stock market just concluded a phenomenal year. Taiex surged 26.7% in 2023, which was the second highest jump in the exchange's history and added $416.2 billion in market capitalisation. This bull run was also supported by foreign institutional investors reaching their highest holdings on the Taiwan Stock Exchange in December. 

Having a quasi-monopoly on sophisticated microprocessors, Taiwan is a key beneficiary of growth in the artificial intelligence (AI) supply chain.

Vietnam

Vietnam’s stock market benefitted from investor diversification outside China in 2023, a trend that could continue this year. The country’s GDP growth in 2024 is projected at 6%-6.5%, among the highest in the world. This will be driven by Vietnam’s stronger manufacturing activity and massive exports. 

While Vietnam could benefit from a reshuffling of supply chains due to continued geopolitical tensions, the greatest risk is a weaker-than-expected global economic recovery.

India

India's S&P BSE Sensex rose around 20% in 2023, hitting record highs several times, to become among the best-performing stock indices in the world. The Indian economy has size, scale, and rapid technology adoption on its side. These could continue to be the flavour in 2024, enabling the country to maintain its position as the world’s fastest-growing major economy.

Bullish sentiments for the Indian economy and a positive outcome of the general elections in April-May could support Indian stocks, despite their current P/E multiples of above 22.

While emerging economies will be on investor radars in 2024, the laser focus will still be on the US stock market, which is by far the largest. With a market cap of over $46 trillion, it is 8 times Japan’s stock market and 13 times that of India. If there is one parameter to watch, it will be the Fed’s monetary policy decision, which will impact all assets and all markets across the globe.