SINGAPORE: In the wake of a turbulent first week of September, observers remain optimistic about the resilience of the Asian stock market.
Despite a sell-off, analysts believe these markets can bounce back, buoyed by potential interest rate cuts in the United States and the continued global economic growth.
James Cheo, chief investment officer for Southeast Asia and India at HSBC Global Private Banking and Wealth, expressed confidence in the US economic data, noting that while activity is slowing, it is not grinding to a halt.
He also highlighted the strong performance of tech companies and the expected gradual approach of the Bank of Japan to tightening monetary policy.
Recovery in the Asian stock market
In a statement to CNA, Cheo said, “Once the volatility settles, we anticipate a recovery in global and Asian equities, driven by earnings growth, rate cuts, and the deployment of high cash balances.”
He also predicted that global equity markets will likely trade higher in the coming months, with the US economy seemingly steering towards a soft landing rather than a full-blown recession.
Vasu Menon, managing director of investment strategy at OCBC, echoed these sentiments, stating that the US will likely avoid a deep recession and that investors should remain invested with a medium-term positive outlook.
He also noted that stock valuations, particularly for non-tech stocks, are not excessively high and that the US Federal Reserve rate cuts could further support equity markets.
The sharp decline in Asian markets on Wednesday, triggered by weak US manufacturing data and a significant drop in Nvidia’s shares, did not deter the optimistic outlook.
Menon pointed out that the Asian markets are expected to post smaller losses on Thursday and Friday, indicating a potential stabilization.
Chen Jingwei, chief investment strategist at Wrise Private Singapore, emphasized the interconnectedness of the global economy and the shift in investor sentiment towards safer assets.
He also highlighted the significance of Nvidia’s performance and the anticipated US rate cut as key market drivers.
Analysts also noted the historical volatility of September in the stock market, with major events such as the US jobs report, the presidential debate, and the Fed meeting adding to the uncertainty.
Despite the recent hits, the tech sector is still viewed as having long-term potential. Chen of Wrise Private maintains a bullish outlook on generative AI and Nvidia, while Cheo of HSBC expressed a preference for the tech sector and seeks to increase exposure to US industrial stocks.
Broadly, Asia’s economic growth is seen as benefiting from structural trends, AI-driven innovation, and an investment boom in supply chain revamps and green transformation.
Cheo added that equities in Japan, India, and South Korea are favoured to capitalize on these growth trends and corporate governance reform.
Menon of OCBC also expressed positivity towards the Singapore bourse, citing relatively cheap valuations and yield opportunities, particularly in real estate investment trusts (REITs), which are expected to perform better in a lower interest rate environment.
How will this affect the Singapore stock market?
Interest rate cuts in the United States have a significant impact on the equity markets in Singapore. When the US Federal Reserve lowers interest rates, it typically leads to a decrease in the cost of borrowing, which can stimulate economic activity and increase consumer spending.
This, in turn, can boost corporate earnings and lead to higher stock prices in Singapore.
Will ordinary Singaporeans benefit?
Consumers now have more spending power
When borrowing becomes cheaper, people have more money in their pockets. This extra cash can lead to more shopping and spending, which is good for businesses. When businesses make more money, it can push up the prices of their stocks.
Businesses invest and grow
Lower interest rates make it cheaper for businesses to borrow money. With cheaper loans, companies can invest in new projects, expand their operations, and hire more people. This growth can lead to higher profits and drive up stock prices.
Investors feel more optimistic
When people expect interest rates to go down, they often feel more confident about the economy. This optimism can lead to more people investing in the stock market, which can help push stock prices higher.
Good time for long-term investments
With interest rates expected to stay low, investing in various sectors is a favourable time. Lower rates can help these sectors grow and become more profitable, which is good news for investors looking to put their money into stocks in the long run.
Positive outlook for Singaporean equities
As the Asian stock market volatility settles, the outlook for Asian and Singaporean equities remains positive, with analysts predicting higher trading in the coming months.
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