It's the time of year when people make predictions, right? I'm going to try something a little more outspoken than saying markets will be "volatile" next year. When are they not?!
The other staple of forecasters is to predict more of the same. I'm not going to do that, either.
Here are five calls for what'll happen in Asia in 2020 -- which will be Asia's decade, by the way.
Hands-Off-China Sentiment Drives Taiwan Ballot Box
Taiwan takes to the polls for presidential elections on Jan. 11. The race between incumbent Tsai Ing-wen and the Kuomintang candidate Han Kuo-yu has been shaped by their views on how close the island should be to mainland China. Tsai is fervently hands-off, while Han favors closer ties with Big Brother.
The Hong Kong demonstrations that have run since late spring have strongly influenced how the election stacks up. Beijing has been pushing the "One Country, Two Systems" model operating in Hong Kong as a solution to incorporating Taiwan, known to itself as the Republic of China, into the People's Republic of China, the Communist part.
I expect a handy victory for Tsai, who has been broadening her lead over her rival. What's been going on in Hong Kong has served as a cautionary tale about how Taiwan would most certainly lose its autonomy if it agreed to the flawed system operating half-heartedly, when Beijing wants it to, in Hong Kong and Macau. Taiwan stays independent -- and yes, it is -- for the decade, and beyond.
Hong Kong Elections a Closer Fight
Beijing was apparently so surprised by the elections for district council in November in Hong Kong, where virtually every seat went to a pro-democracy candidate, that it didn't know what to do. State-owned publications had pre-written news articles celebrating a victory for the pro-establishment "silent majority," and Beijing bigwigs had apparently believed their own propaganda.
Beijing certainly won't repeat that mistake in September, when Hong Kongers will elect some members of its congress, the Legislative Council. Half the seats in LegCo are appointed by professional groups, mostly staunchly pro-Beijing due to their business interests on the mainland. But even certain professions such as accounting may be turning pro-democracy. The remaining seats that are up for a public vote will be fought for vigorously, as symbolic signs of the true sentiment of Hong Kongers.
Beijing continues to insist that sinister "dark hands" and foreign forces have been fomenting anti-China sentiment in Hong Kong. The truth is, Hong Kongers are fed up with having their institutions and freedoms whittled away, bit by bit. What good is a Court of Final Appeal (think: Supreme Court) if Beijing rules, as it has, that the Chinese courts can always "interpret" a final appeal verdict their own way?
I was very pleasantly surprised by the pro-democracy vote for those district councilors, who oversee nothing more important than which bus stop has a shelter and whether a sidewalk needs a pedestrian crossing. I have a feeling Communist "dark hands" will operate powerfully behind the scenes to make sure this is not repeated in the next vote. The democrats secure a couple more seats, but not enough to make a difference, which Beijing tries to paint as a "law and order" mandate.
Japan Basks in Collective Olympic Glow
I love traveling in Japan. The nation is simply a great host. Tokyo has been working on being even better in time for the big show this summer. The 2020 Olympics will give the whole nation a lift, as Japan unifies to provide great Games. The free publicity from hours of establishing shots and gratuitous images of people eating sushi and visiting temples will inspire a "Japanese moment" that will ripple socially and economically for years to come.
Taxi drivers have been taking English lessons, the confusingly complex Tokyo subway system has easy-to-read color and number coding so you know where to go, the city has sensibly spruced up quite a number of legacy venues from the 1964 Games, and built a wonderful timber-clad $1.4 billion National Stadium designed by Kengo Kuma, a simply masterful natural-themes minimalist architect.
Japanese business has, dare I say it, finally started to have a little confidence in itself. Companies are making some capital expenditure investments, and boards are beginning to take on board critical outside voices. There's restructuring evidently on the way, for instance, that Hitachi (HTHIY) has reduced its number of listed subsidiaries from 22 in 2008 to three now.
After a record amount of Japanese mergers and acquisitions in 2019 -- 2,840 deals and $55 billion spent on intra-Japan mergers -- Japan Inc. will continue to reform and open up to international standards. The economy will show slow and steady growth, stocks will rise pleasantly, and we'll start thinking of Japan as a can-do nation again.
China Faces U.S. Attack Over Capital Markets
After taking China to task on trade, and attacking companies such as Huawei Technologies and ZTE (ZTCOY) over their security practices and ability to win U.S. government contracts, the administration of U.S. President Donald Trump will intensify its scrutiny of China's access to U.S. capital markets.
Nasdaq and the New York Stock Exchange had, at the end of the third quarter, 156 listings of Chinese companies. Chinese companies have raised more than $70 billion in U.S. markets since 2000, according to Refinitiv.
I'm betting that Trump thinks it's pretty weird a Chinese investor can buy a majority stake in a U.S. company, even take it over entirely, but U.S. investors are not able to do the same in China. What's more, he may start to wonder why Communist China is allowed such unfettered access to the U.S. capitalist system.
There's limited scope for a full-frontal attack on U.S. listed Chinese equities without doing damage to the U.S. markets themselves. What will happen is that federal government entities and pension funds will be banned from buying Chinese state-owned companies with any securities-industry ties. The not-so-secret push to bar Chinese companies from raising so many funds in U.S. dollars will result in a furor over accounting standards, and the lack thereof for even U.S.-listed Chinese companies.
South Korean Stocks Continue to Surge
South Korean equities have been some of the world's worst performers in 2019. Thanks to a dependence on semiconductor stocks, the market has struggled as that industry wades through a morass of unsold stock. A chip glut, and not the kind you find around my kids' seats in the back of the car, which can at least be fixed with a vacuum, soap and warm water.
That share selloff stopped last August, and the Kospi has been on a particularly hot streak in the last month. Korean stocks are some of the best performers in December, with the benchmark Kospi up 6.6% since Dec. 5. The S&P Korea Board Market Index has done even better, up 10.0% in December.
Taiwanese markets share many of the same characteristics as those in Korea, with a similar dependence on semiconductor and electronics makers. Yet the Taiwan broad market index is up 34.8% in 2019. The December surge basically took the S&P indicator into the black for the year, looking at a 9.5% rise. The Kospi, which has a market-cap weighting favoring big players like Samsung Electronics, is up only 7.7% for 2019.
This huge discrepancy between Taiwanese and Korean markets makes no sense. Expect Korean equities to close that gap in 2020.