Stock markets in China and other East Asian countries will rally next year despite slowing economies on expectations global central banks will supply ample liquidity, Reuters polls showed. The Shanghai Composite Index has had a stellar year soaring more than 40 percent even as its regional peers missed a global bull run. Stocks markets in South Korea and Hong Kong have posted losses so far in 2014.
On Tuesday, the Shanghai benchmark closed at 3,021. By the end of 2015, according to the poll, it is expected to be 3,400 points - more than 12 percent higher. Those forecasts come despite the world's second largest economy slowing significantly this year and widespread concerns about its property market, which accounts for about 15 percent of the economy.
"The current rally in China is mainly fuelled by the expectation of (further) monetary easing policy," said Zhang Gang, analyst at Central China Securities in Shanghai. "So if the economy gets better in the second half of next year, it means the government might diverge from the current policy stance, then the stock indexes would rather slightly weaken."
China's economy grew at an annual rate of 7.3 percent in the third quarter, a shadow of the double-digit growth rate it was used to, prompting the central bank to surprisingly cut interest rates last month. The outlook isn't any better with a private survey on Tuesday showing Chinese manufacturing activity contracted in December for the first time in seven months.
The negative economic news will likely intensify calls for further easing from Beijing and raise prospects of hot money flows resulting from money printing in Japan and the euro zone. "Despite looming prospects of a rate hike by the US Federal Reserve, other central banks are likely to pick up the slack by tapping their liquidity pumps," said Lee Kyung-min, an analyst at Daishin Securities.
The Fed is expected to raise interest rates around mid-2015, followed by the Bank of England in the third quarter. In contrast, the Bank of Japan and European Central Bank are expected to ease policy by flooding markets with cash to stave off deflation risks and rekindle growth. Indian shares are predicted to rally over 20 percent from now until December 2015 extending the steep gains this year.
The poll also suggested the Hang Seng Index will put in a strong performance in the new year despite lagging in 2014, rising to 25,200 points by December 2015 from Tuesday's 22,670. South Korea's main KOSPI index is expected to gain more than 10 percent to reach a four-year peak by the end of 2015. Analysts said South Korean equity markets will be buoyed by a liquidity wave in a global market that is forecast to be flush with easy money as some major central banks ramp up stimulus measures.
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