BENGALURU Oct 4 East Asian stocks face a
turbulent end to the year, buffeted by heightened risk of a U.S.
interest rate hike in December and worries about China, but a
Reuters poll also suggests investors can expect better returns
Emerging market equities have performed unevenly in 2016
after China's economic slowdown and currency depreciation in
January set the tone for a bumpy ride.
Repercussions from Britain's vote to leave the European
Union and a U.S. presidential election in November have also
dominated money flows and several equity strategists said the
outlook over the next six months was considerably hazy.
Given these potential risk factors could trigger sudden
outflow from emerging markets, the Shanghai Composite Index
, which is already down more than 15 percent this year,
is forecast to end 2016 at 3,000 points, just below Friday's
close of 3,004.70. Forecasts ranged from 2,900 to 3,240.
That end-year forecast has been consistently downgraded
throughout the year, from 3,300 points in an April poll to 3,050
points in a July poll.
South Korea's Kospi Index and Taiwan's Taiex Index
are also set to fall from here until year-end, the poll
taken in the past week showed.
"If the Fed raises rates later this year, the key thing will
be what sort of signal it provides for the path of rates going
forward. At the moment markets are not expecting many rate hikes
(in 2017) but I think they may be complacent," said Julian
Evans-Pritchard at Capital Economics.
"A signal of a steeper path for Fed rates next year would
trigger renewed strength in the dollar and weakness in the
Chinese yuan and it will raise concerns about possible
interventions from the People's Bank of China. In the past such
concerns haven't done any good for emerging markets."
Fed Chair Janet Yellen said last month she expected one rate
rise this year if the U.S. job market continued to improve and
major new risks did not arise, leading economists and financial
markets to price in a December move.
But futures data show investors are pricing in the chances
of a follow-up rate hike in 2017 at just about one-in-four even
as far out as September, compared to Fed policymakers who
predict two moves next year.
China, the world's second largest economy, has steadily
slowed in recent years as overcapacity in many industries, an
overvalued housing market and deteriorating global trade flows
put the brakes on activity.
This comes at a time during which Beijing has been trying to
reposition growth toward consumption rather than exports.
While China's economy is starting to show signs of
stabilisation, the consensus among economists is that it still
remains sluggish and a build-up of debt remains a risk.
The poll showed 2017 will be a better year for most east
Asian stocks as reducing monetary policy uncertainty in
developed markets and generally better growth in the global
economy increases investor appetite for riskier assets.
While Chinese stocks are forecast to rise 9 percent across
2017, South Korean equities will climb 5 percent, according to
"The KOSPI will extend gains in 2017 as major economies are
expected to strengthen gradually, which will support South
Korea's exports," said Sim Byeong-chan, analyst at Hyundai
Securities in Seoul.
Taiwan's stock market is the only major index polled on in
Asia which is expected to fall next year.
The outlook for a better 2017 is not just limited to east
Asia as stocks in the wider region, such as in Australia, India
and Japan are also expected to perform better.
India's BSE Sensex index, which is up 8 percent so
far this year, is forecast to rise nearly 3 percent to 29,000 by
the end of December and further to a record high of 30,400 by
mid-2017. By the end of 2017 it will rise to 32,000.
Australian shares are likely to rise 6 percent over the next
15 months to 5,800 by end-2017, driven by record-low interest
rates and buttressed by recovering commodity prices.
Japanese stocks are set for an annual drop in 2016, ending a
four-year 'Abenomics' rally, but analysts expect the Nikkei
to trade at 18,500 by end-2017, a gain of over 11
percent from current levels.
(Poll data: )
(Other stories from the Reuters global stock markets poll:
(Polling by bureaus in Bengaluru, Seoul, Shanghai and Taipei;
Additional reporting by Dahee Kim in Seoul and Carol Lee in
Taipei; Editing by Shri Navaratnam)