Indian shares have been Asia's top performers for the year once again, one of the few markets where equities eked out an advance in 2022. And with the Indian central bank nearing the end of its hiking cycle, stocks in the subcontinent should be set for another solid year in 2023.
In Mumbai, the Sensex is notching a 4.9% year-to-date advance as of afternoon trading on Friday, the year's last day of trade. The markets in Indonesia, up 4.1% at the close, and Singapore, up an equal 4.1% just as trading ends, are not far behind. But aside from Thailand's narrow 0.9% advance, there are no other gainers among Asia's major markets.
India has been the fastest-growing major economy in the world this year, with GDP increasing an estimated 6.7%. It looks set for a solid performance for its domestic economy, a "medium-term champion" in the words of Nomura's Asia quant outlook for next year. It is gaining as manufacturers diversify production away from China, and with little reliance on Chinese demand looks to have strong prospects for corporate profits the next two years.
The worst showing for equities is once again in China. Despite an official forecast that the economy would grow "around 5.5%," China will be lucky to post GDP gains of around 3% when the bookkeeping is all said and done for 2022.
The CSI 300 index of the largest listings in Shanghai and Shenzhen finished 2022 down 21.3%. The 10.3% rally since the end of October was not enough to turn mainland China's markets around, the end of China's economically crippling zero-Covid policy resulting in the current period of uncertainty. We know next year will be better for the Chinese citizenry and the Chinese economy. But we don't yet know how much damage the massive Covid-19 outbreak currently under way will do.
Hong Kong's Hang Seng Index finished 2022 down 15%. It had been last year's worst performer among global major markets, down a similar 14.1%, with overseas-oriented Chinese companies suffering in particular as China closed its borders and refused to engage with the rest of the world. Hong Kong is also the listing site of choice for the vast majority of the beleaguered Chinese property industry, which has continued to post dismal sales and capital valuation figures this year. Chinese homebuyers have lost confidence in the market, something the Beijing powers-that-be have only at year's end tried to rectify with moves to support capital markets.
Japan and China have been alone among major central banks in failing to raise interest rates. Inflation in both nations is essentially under control. While the November reading we just got for Japan showed prices are rising 3.7%, the fastest pace since 1981, that is largely a result of higher energy prices in a country that imports all its oil. The Japanese central bank is also keen to ensure that inflation of around 2% sets in, for good, and will tolerate a slightly higher pace that's likely to moderate as fuel prices normalize.
The broad-market Topix index in Tokyo fell 6.8% in 2022 and looks on a secure footing as a defensive play that might switch to offense in 2023. The Dow-like Nikkei 225 of large-caps fell 11% for this year, with Japan's multinationals needing to make sense of a highly volatile yen. They were the prime victims as the Bank of Japan made the surprise move last week to widen the permissible yield on 10-year Japanese government bonds. That's a policy change I explained may be designed to ease the pressure on the yen due to the central bank's failure to raise rates.
Australia and New Zealand are often insulated against the worst of the world's economic woes. But the "Lucky Country" wasn't spared in 2022, with the S&P/ASX 200 Index down 7.3%. Property shares fell as prices shifted into reverse, with the Reserve Bank of Australia making mortgages more expensive with eight straight interest rate increases, to a decade high of 3.1%. The central bank anticipates inflation will peak at 8% next year.
Across the Tasman Strait, the S&P NZX All Index lost 15.8% in Wellington as the Reserve Bank of New Zealand raised interest rates nine times since October 2021, from 0.25% to 4.25%. The Kiwi central bank predicts rates will need to rise further next year, peaking at 5.5% and causing New Zealand to suffer a year-long recession it deems necessary to bring inflation under control.
Inflation and higher interest rates have been the order of the day for much of Asia, but to a far lesser degree than the rampant inflation experienced in the West. China's zero-Covid policy has been as much on our minds out here in Asia as rising prices, with the world's second-largest economy suffering through stop-start performance.
Zero-Covid left citizens feeling as though they were playing "Covid roulette" every time they left their home city, unable to do so if their Covid app would change color due to some random happenstance of having been near a confirmed Covid infection, thus forcing them into centralized quarantine. Companies attempted to overcome this by forming closed-loop systems where employees lived on the work site, changes that allowed production to continue at considerable personal cost to the employees in question.
All that has gone in one fell swoop as China eliminated its Covid control measures on Dec. 7. With travel restrictions shed in and out of China, other Asian nations once again are bracing for a temporary Covid surge as Chinese visitors return. But the year ahead will surely feature a return to consistent performance for the Chinese economy, which will filter through gradually to most Asian nations, leaving them looking for positive performance next year.
Next year should be better for Asian equities in general if central banks pause and the heat from inflation eases. India looks strong, Japan appears solid and China will be a recovery play. Bring on next year.