Last week, the Asia-Pacific stock markets exhibited a rather muted performance, with South Korean stocks rebounding after a dip, Japanese stocks experiencing a slight decline, and Southeast Asian indices reflecting a mixed outcomeIn examining specific figures, the Nikkei 225 index in Japan recorded a modest drop of 0.96%, or 386 points, sinking below the 40,000 mark to finish at 39,894.54 pointsOn a more positive note, the Australian S&P/ASX 200 index edged up by 0.6%, gaining 49.3 points to close at 8,250.5. The most noteworthy development came from South Korea, where the KOSPI index made a surprising recovery, concluding the week at 2,441.92 points.

Southeast Asian markets demonstrated a patchy performanceThe Indonesian market led the region with a weak upward trend, as the Jakarta Composite Index climbed by 1.82% over the week to reach 7,164.43 pointsIn contrast, Thailand's SET index fell by 1.19%, ending at 1,384.76 points; Malaysia's Kuala Lumpur Composite Index saw a slight increase of 0.08%, closing at 1,629.46 points; Singapore's Straits Times Index rose by 0.8% to finish at 3,801.83 points; the Philippine index in Manila surged by 1.15%, adding 75 points for a total of 6,603.81, while Vietnam's Ho Chi Minh Index recorded a drop of 1.61%, settling at 1,254.59 points

As Southeast Asia wrapped up its market performance for 2024, the variations among the indices were pronounced.

Throughout the year 2024, except for South Korea and Indonesia, major stock indices in the region demonstrated positive annual growthAn overview of the entire year reveals that both Vietnam and Singapore emerged as market outperformers, with the Ho Chi Minh Index achieving a noteworthy increase of 10.3%, and Singapore's Straits Times Index following suit with a 17.3% hikeJiang Han, a senior researcher at the Pangu Think Tank, elaborated on this trend with reporters from the 21st Century Business Herald, attributing the robust performance of Vietnam and Singapore's stock markets in 2024 mainly to the steady economic growth observed in both nationsAs an emerging market economy, Vietnam has established a significant position within the global supply chain regarding manufacturing and exports, basking in the benefits brought about by global economic recovery and heightened trade activity.

Singapore, on the other hand, capitalized on its status as an international financial hub, which resulted in considerable foreign capital inflow, further driving the surge in its stock market

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Notably, in contrast to the successes of Vietnam and Singapore, the stock markets of Thailand and Indonesia lagged behind their regional counterpartsThe SET Index in Thailand noted a decline of 2.3% for the year, while Indonesia's Jakarta Composite Index registered a greater dip of 3.3%. The downward trend of the Indonesian stock market, particularly, has drawn considerable attentionIn the middle of 2024, substantial foreign capital began funneling into the Indonesian capital market, with the market seeing continuous purchases for 14 days straight in AugustHowever, the Indonesian market transitioned from a vibrant state to a more subdued one, raising questions about this sudden collapse.

According to Institutional Analytics data, by the end of November, foreign capital outflows from Indonesia totaled approximately $891 millionThis exodus prompted the benchmark stock index to fall around 9% from its historical high of September 19, edging close to a correction

Some analysts noted that the allure of emerging market assets diminished due to the strengthening US dollar, leading to a more cautious stance among foreign investors regarding the Indonesian stock marketRecent weeks have seen a surge in worries that US policy could stoke inflation within the country, compelling the Federal Reserve to slow the pace of interest rate cutsThe stronger dollar and rising US Treasury yields subsequently wreaked havoc on assets in emerging markets, leading to a depreciation in the Indonesian Rupiah against the dollar as wellBy the end of 2024, the Rupiah dropped 5.7% relative to the dollar.

Turning our focus to the factors contributing to the declines in the Thai and Indonesian markets in 2024, Jiang Han suggested that changes in global market sentiment likely played a roleHe postulated that fluctuations in the global economic climate could lead investors to reassess their risk appetite toward emerging markets, ultimately resulting in capital outflows and declining stock prices

Additionally, prevailing uncertainties surrounding policies in both Thailand and Indonesia may have introduced negative sentiment into the markets.

Considering the monetary policy landscape in Southeast Asia, market analysts observed that the positive yield outcomes across many Asia-Pacific indices in 2024 were partially attributable to central banks' easing monetary policies and the buoyancy of the artificial intelligence sector, which has bolstered technology stocksAs 2025 approaches, questions arise about how Southeast Asian monetary policies will developHSBC's Chief Asian Economist and Co-Head for Asia, Fan Limin, speculated that the Federal Reserve might only enact a cumulative 75 basis points of interest rate cuts in 2025, and the pace of these reductions could slow to 25 basis points per quarter during the first three quartersMany Asian economies have shown a heightened sensitivity to fluctuations in US interest rates

Fan expects that the current rate-cutting cycle among Asian central banks may conclude sooner and will reflect a modest scale, suggesting that if the Fed's final reductions in 2025 fall short of expectations, Asian central banks may likewise opt for smaller cuts.

Nomura added another layer to this dialogue, positing that monetary policy outlooks within Asia may divergeFor instance, Indonesia could experience an increased susceptibility to currency risks, leading the country to adopt a more accommodative stance in 2025. In contrast, Malaysia's strong growth paired with high inflation could result in an inclination to raise interest rates owing to its still-loose monetary conditionsAccording to Jiang, the extent of interest rate cuts by Asian central banks will hinge on global economic conditions and corresponding monetary policiesIf the world economy experiences deceleration or faces downward pressures, central banks may resort to rate cuts to stimulate economic activity

Conversely, should the Federal Reserve's rate reductions underperform expectations, central banks across Asia will likely adopt a more cautious approach when implementing their cuts.

Another factor influencing the Southeast Asian stock performance in 2024 was the notably low number of IPOs recorded, marking the least activity in nine yearsData indicated that by October 2024, the region had only completed 122 initial public offerings, yielding around $3 billion in fundraising, which starkly contrasted with the 163 IPOs collectively raising $5.8 billion in 2023, indicating a significant downturn.

Despite the overarching pessimism, many institutions maintained an optimistic outlook for Asian stock marketsMike Shiao, Chief Investment Officer for Invesco Asia (excluding Japan), asserted that Asia is regaining control over inflation faster than other regions worldwide, setting the stage for monetary easing

With the Federal Reserve now entering a phase of loosening, Asian economies are likely to enjoy broader scope for rate cuts in 2025, with such easing generally acting as a tailwind for stock markets.

The Japanese stock market's trajectory remains a topic of intrigue heading into 2025. The year 2024 proved tumultuous for Japan's equities, initially witnessing remarkable growthThe first half of the year was characterized by forecasts of high performance, leading to record-breaking highs in the Nikkei 225 indexDuring July, the index soared past its historical apex to touch 42,426.7 pointsHowever, this momentum was abruptly curtailed in August, as Japan's market experienced a calamitous "Black Monday," wiping out nearly 19% from the annual gains in what seemed like a flashAnalysts attributed the steep decline to a combination of lackluster US economic data coupled with the Bank of Japan's dual strategies of interest rate adjustments and balance sheet tapering alongside heightened geopolitical tensions.

By year-end, Japan's stock market began to find its footing, with the Nikkei 225 index concluding at 39,894.54 points, ultimately marking a 19% increase for the year