Last week we asked readers to predict which stock markets would perform best this year, choosing from four that have enjoyed a good start in 2012: Hong Kong, India, Indonesia and Singapore.
Based on year-to-date performance, India has had the strongest run so far with an 18.5% rise on the Sensex. Hong Kong’s Hang Seng Index is up 16.5% and Singapore’s Straits Times Index is up 13.5%, while Indonesia’s Jakarta Stock Exchange Composite Index is the laggard of the group with just 4% growth since the start of the year.
However, our readers’ predictions for full-year performance gave a slightly different order, with close to half expecting Hong Kong to be leading the pack by Christmas, followed by Indonesia, India and Singapore in a distant last place.
A more important issue for many investors is whether growth will continue in the same vein for the rest of the year. That is uncertain. The current optimism is somewhat at odds with the global outlook, including the continued mess in the eurozone, which has led some analysts to worry about an almighty asset bubble.
Indeed, Bob Janujah at Nomura in London is positively terrified. “I am simply stunned that our policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas,” he wrote in his Bob’s World note yesterday. “The crisis was caused by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people.”
Janujah fears that policymakers are now doubling up on the same failed strategy, pumping yet more liquidity into the financial system with potentially disastrous consequences.
“This current bubble, if it is allowed to fester and develop into 2013, will have such widespread consequences when it bursts that it will make 2008 feel, relatively speaking, like a bull market.”
That is a gloomy thought and hardly bodes well for Asian stocks — or any assets at all. Indeed, according to the view from Janujah’s office, the best outcome may be that economic indicators in the West deteriorate quickly, forcing politicians and central bankers to grasp the nettle and address real, long-term solutions in the form of supply-side reform, competitiveness and growth.
Everyone stands to benefit if the developed economies can find a timely solution to their problems. If they cannot, all bets are off — and discussions about Asia’s best-performing stock market will be moot.