Guide to Trading on Asian Exchanges: Opportunities and Risks in 2024

Graham’s wisdom on asset valuation becomes especially relevant when observing current Asian markets. At lower prices, risk is reduced; at higher prices, exposure increases. From this perspective, the major markets of East Asia present a particular attractiveness in the current economic context. This analysis provides you with key elements to understand Asian markets, assess their market situation, and project your investment strategy for the coming year.

Current Overview of Asian Markets

The focus in Asian financial markets is currently on both cyclical and structural challenges facing the Chinese economy, and what measures authorities will implement to reverse the current situation.

In terms of market capitalization, the three main Asian markets in China —Shanghai, Hong Kong, and Shenzhen— have experienced a value destruction of nearly $6 trillion since their 2021 peaks. The results speak for themselves:

• China A50 Index: down 44.01%
• Hang Seng Index: down 47.13%
• Shenzhen 100 Index: plummeted 51.56%

This deterioration results from multiple concurrent factors: the failure of zero-COVID policies, regulatory tightening on tech companies, the real estate crisis affecting the heart of the economy, contraction of external demand, and US trade restrictions on advanced semiconductors destined for China.

The result is clear: China’s economy has departed from its double-digit growth trajectory, and structural obstacles are becoming increasingly evident. Foreign direct investment is declining, manufacturing is shifting toward emerging economies like India, Vietnam, and Indonesia, demographics show accelerated aging with historically low birth rates, foreshadowing population decline and pressures in the labor market.

Economic Policy Responses

In response to this reality, the Chinese central bank (PBOC) has announced a 50 basis point reduction in the Reserve Requirement Ratio for banking institutions, a move that would free approximately 1 trillion yuan (equivalent to about $139.45 billion) for injection into the economy.

However, the most strategic measure still under negotiation would be a market rescue package of approximately 2 trillion yuan ($278.9 billion), financed through external accounts of state-owned enterprises as part of a stabilization fund designed to acquire local securities and contain the bleeding of sales observed in Asian markets.

Meanwhile, the monetary authority has maintained the 12-month lending rate at its historic low of 3.45%, a procedure initiated in late 2021.

Additionally, China is currently experiencing deflationary pressures that reveal deterioration in domestic consumption. The implemented actions represent conventional liquidity stimuli, but their delay and lack of coordination within a comprehensive program raise questions about their sufficiency to reactivate economic activity. While Asian financial markets watch the outcome, official figures show that China’s GDP grew by 5.2% in Q4 2023, slightly below forecasts but significantly distant from the explosive growth of previous decades.

Fundamental Dimensions of the Asian Market

Asian financial markets encompass the universe of stock exchanges and capital markets operating in Asian nations, particularly in the Asia-Pacific region. This continent, the largest and most populous on Earth, has experienced a progressive shift of the global economic epicenter toward its territory, creating significant opportunities for participants interested in Asian markets.

The most relevant economies by size include:

China — the second-largest global economy — hosts three of Asia’s largest stock exchanges: the Shanghai Stock Exchange (the largest in the region), the Hong Kong Market (HKEX), and the Shenzhen Stock Exchange. These markets include over 6,800 listed companies, although there are specific conditions for foreign investors.

India — the fifth-largest economy worldwide — has multiple capital markets, with the Bombay Stock Exchange as its main center, offering access to over 5,500 companies.

Subsequently, we find mid-sized economies already consolidated: South Korea, Australia, Taiwan, Singapore, and New Zealand.

Equally relevant are dynamic emerging markets: Indonesia, Thailand, the Philippines, Vietnam, and Malaysia, which have increased their economic expansion in recent decades with heterogeneous results.

Capitalization volume in Asian stock markets

According to market data for 2023, the largest Asian stock centers by capitalization were:

• Shanghai: $7.357 trillion (undisputed leader)
• Tokyo (Japan): $5.586 trillion
• Shenzhen: $4.934 trillion
• Hong Kong: $4.567 trillion

The combined total of Chinese Asian markets reached $16.860 trillion, followed by markets in India, South Korea, Australia, and Taiwan. This concentration reflects China’s importance as a regional financial engine.

Operating Hours and Session Synchronization

For those operating from European locations, understanding Asian market hours is essential. Taking Madrid as a reference (time zone CET/GMT+1):

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

If you reside in Madrid and wish to operate these Asian markets in real-time, you should be active between 1:00 a.m. (Tokyo open) and 9:00 a.m. (Hong Kong close).

The overlap of the four main Asian markets occurs between 2:30 a.m. and 8:00 a.m., a period that guarantees maximum volume and liquidity. This “Asian overlap” represents a strategic window of operational opportunities with high transaction activity.

Technical Analysis of Major Indices

China A50 Index

This indicator tracks 50 class A shares from Shanghai and Shenzhen, selected by market capitalization, representing the largest and most liquid companies in mainland China.

The China A50 has maintained a downward trend since February 2021 (historic high: 20,603.10$). It currently trades at 11,160.60$, approximately 9.6% below its 50-week exponential moving average (12,232.90$). The Relative Strength Index fluctuates downward below its mid-zone, indicating bearish consolidation.

Key technical levels: 8,343.90$ (2015 lows), 10,169.20$ (2018 lows), 15,435.50$ (2015 highs). Sustained bullish reversals require a clear trend breakout and reconfiguration of momentum indicators.

Hang Seng Index

Weighted by market cap, it tracks major Hong Kong companies, covering 65% of total capitalization with over 80 multi-sector companies. It shows similar dynamics to the China A50: trading below its downward trend line, RSI in bearish consolidation, current level 16,077.25 HK$. Nearby resistances are at 18,278.80 HK$ and 24,988.57 HK$.

Shenzhen 100 Index

Measures the 100 main class A shares listed in Shenzhen, operating in a bearish key since February 2021 (high: 8,234.00 yuan). It currently trades at 3,838.76 yuan, 16.8% below its 50-week average. The RSI is near oversold (30). Significant supports are at 2,902.32 yuan (2018) and 4,534.22 yuan (2010).

Despite the current negative performance, latent potential exists in these Asian markets conditioned on improved economic activity and favorable policies.

Structural Challenges of the Region

The Asia-Pacific region faces four fundamental challenges:

1. Geopolitical instability: The region is the epicenter of multiple tension points (Korean Peninsula, South China Sea, Taiwan Strait, India-China border), with risks of trade or military escalation that could compromise stability and cooperation.

2. Economic growth slowdown: China is expected to maintain more moderate growth rates, generating secondary effects in economies dependent on trade, investment, and regional tourism. The post-COVID recovery is still ongoing.

3. Accelerated demographic transition: Population aging, intensive urbanization, migration, and changing social roles among youth generate pressures on social security, environment, labor availability, and skills mismatches.

4. Climate vulnerability: The region will face increasing impacts from extreme events, biodiversity loss, and food insecurity. Simultaneously, it accounts for about 50% of global greenhouse gas emissions, requiring a balance between development and energy sustainability.

Context of Global Market Hegemony

Absolute leadership remains with the United States, which accounted for 58.4% of global stock market capitalization in 2022. This dominance results from prolonged growth in the 20th century, institutional strength, and the dollar’s role as the world reserve currency.

The main Asian markets (Japan, China, Australia) together held a 12.2% share. Although the gap is substantial, it is instructive to recall that Japan reached 40% share in 1989 — even higher than the US — before its prolonged decline. In China’s case, its performance so far has been remarkable, but the central role of the state in the economy could limit future growth opportunities, affecting Asian market prospects.

Investment Options in Asian Markets

Direct Stocks

Direct equity investment: Major Chinese corporations compete in magnitude with Western giants. State Grid (utilities), China National Petroleum, and Sinopec (energy) lead by revenue. These acquisitions face restrictions for foreign retail investors.

More accessible alternatives include digital economy and manufacturing companies: JD.com (e-commerce, $156 billion in revenue), Alibaba, Tencent, Pinduoduo, Vipshop, and BYD (vehicles). These can be purchased via ADRs on Western exchanges.

Derivatives and Alternative Products

For indirect trading, derivative instruments such as Contracts for Difference (CFDs) exist, allowing speculation without owning the underlying asset. These are traded on regulated platforms, providing exposure to indices, stocks, and currency pairs in Asia.

Conclusion: Policy Monitoring

If your goal is to participate in Asian financial markets — especially China — the primary strategy involves continuous monitoring of announcements related to monetary, fiscal, and regulatory stimuli. That is the metric you should systematically pay attention to. Entry timing will depend on signals of trend change in government policies and technical confirmation of bearish reversals.