Shares in Shanghai, Hong Kong and South Korea are expected to rally over the next six months on expectations that China's central bank will ease policy, boosting both its economy and that of the region, a Reuters poll showed. The Shanghai Composite Index is among the few major indices which have lost ground this year, falling by over 4 percent, even as equity markets in India and western economies soared to record highs.
In 2013, it fell almost 7 percent and has essentially languished over the past six years at a level half where it was before the financial crisis began, lagging well behind its emerging market peers and Wall Street.
However, forecasts for a rebound are based on an assumption that several years of a government-fuelled credit binge that has driven up property prices and now left an overhang of inventory and falling prices will not turn into a housing market crash.
The consensus from the latest Reuters poll predicts the Shanghai Index will gain over 11 percent from current levels to end this year at 2,250 points, and rise another 9 percent from then until June 2015, taking it to 2,450.
The index ended at 2,025.50 points on Wednesday.
"The People's Bank of China is gradually shifting to easing its policy, which would benefit Hong Kong stocks as well," said Daniel So, strategist at CMB International Securities Limited.
"Its relatively tight monetary policy has contributed to the lagging performance of China and Hong Kong stock markets."
In the poll taken June 16-25, analysts expect the Hang Seng Index to soar to 24,900 by December from Wednesday's 22,866, an almost 9 percent rise. It is then seen surging to 26,250 by June.
China's central bank has taken targeted measures to support the economy, including cutting reserve requirements for selected banks while the government has introduced a host of steps to boost lending to businesses.
While those efforts have helped revive manufacturing, which expanded for the first time in six months in June, according to a private survey, the recovery has remained patchy so far with exports lagging and further signs of cooling in the property market.
Analysts in the poll expect the PBoC to reduce the reserve requirement ratio for more commercial banks in order to increase liquidity and step up lending.
Still, an unexpected slowdown in the economy coupled investors selling emerging market stocks in the event of a sudden change in interest rate expectations for the United States could stall a stock market rally, analysts said.
The US Federal Reserve is on track to end its stimulus programme by December and better growth prospects there could lead markets to factor a hike in interest rates earlier than expected despite Chair Janet Yellen's dovish stance.
The Korean Composite Stock Price Index (KOSPI) is expected to rise over 8 percent for the rest of this year and add a further 5 percent in the first half 2015 to hit an all-time high.
The median forecast tips Seoul's KOSPI to end this year at 2,150, up from the latest close of 1,981.77 on June 25 but lower than expectations of a climb to 2,188 predicted in a March poll.
"Central banks of major (Western) economies will likely maintain an accommodative stance over the short run, providing sufficient liquidity for equities until the global economic recovery fully materialises," said Chang Hee-jong, analyst at Hana Daetoo Securities.
The information technology sector was a consensus pick among analysts as the best performing sector, with demand on memory chips and mobile handsets improving as the economic recovery continues in the United States and euro zone.
However, Taiwan's Taiex Index is seen lagging its peers after a stellar performance so far this year in which it rose over 7 percent.
It is expected to close 2014 at 9,350, a slight uptick from its closing level of 9242.16 on June 25. It will then trend lower and fall to 9,025 by mid next year.
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