Asian Markets 2012 Roundup: A Year of Political Shifts, Economic Woes and Austerity

It has been a tumultuous year for the Asian markets as it wobbled between gains and losses in most part of 2012 as investor sentiments remained in tandem with the volatile macroeconomic scenario that was dominated with austerity plans and stimulus measures.

However, all major Asian bourses posted annual gains, with the Japanese benchmark index hitting its best level since 2005. The Nikkei gained 23 percent in the year, buoyed by the extensive rally towards the year-end.

South Korea's KOSPI added 9.4 percent while Hong Kong's Hang Seng advanced about 23 percent. China's Shanghai Composite Index rose 1.5 percent approximately.

"As much as 2011 was a disappointing year for equities, 2012 proved to be a good year for those brave enough to be remain invested in shares," Jason Hughes, head of Premium Client Management at IG Markets in Singapore told IBTimes UK.

"The end of year report for Asian stocks is that on the whole they have performed well, with many of the major benchmarks standing with more than 20 percent gains year-to-date".

However, economic concerns from Western nations, eurozone break-up fears and anaemic global growth rates had hurt the investor confidence.

"This led to the allocation of funds looking at the larger institutional investors away from risky equities and into the perceived safer fixed income assets".

Eurozone Concerns and Grexit

Early in the year, fears of a potential 'Grexit' and possibility of a disintegration of the single currency bloc weighed heavily on the financial markets.

There were no dearth of expert opinions and analyst suggestions on the possible time frame for Greece either to leave the eurozone or to get expelled from the currency union.

However, that did not happen, much to the relief of investors.

In March, Athens took up its biggest debt restructuring, which helped the country to gain additional time to rekindle its economy. At its second general election in May, Antonis Samaras' pro-reform Democratic Party managed to come to power by a narrow margin.

But things started to get more difficult for Greece towards the second-half of the year as it sought further financial help. Its international lenders decided to impose stricter conditions for the bailout funds to ensure that Greece maintains its economy stable. This forced Athens to take up stiff austerity measures and further debt restructuring, stirring up a hornet's nest of public protests across the nation.

Some of the major Asian markets hovered around their lowest levels in the beginning of June on fears that Greece could run out of money soon, raising speculations about the capacity of the nation to continue with its austerity measures.

But 'Grexit' concerns eased towards the end of the year as eurozone member states further buckled up to make sure that the embattled nation stays in the bloc. German Chancellor Angela Merkel herself travelled to Athens in October, a clear indication of her support for the country, boosting investor sentiments.

US Economic Worries

Slowdown concerns on the world's largest economy had weighed heavily on investors across the region as they looked up to the US authorities for support.

But the Fed's third Quantitative Easing (QE3) measures cheered markets in September along with other positive economic indicators such as improved employment and manufacturing figures from the world's biggest economy.

Though the markets again dilly-dallied during the US presidential elections in November, the re-election of Barack Obama turned out to be positive for the markets, raising further hopes of stimulus measures and growth efforts.

Towards the year-end, investors managed to derive inspiration from positive regional economic outlooks and help indices edge higher despite the US "fiscal cliff" concerns.

"As we reached the end of 2012 we have seen a pickup in confidence, despite the threat of the looming Fiscal Cliff in the US, and there seems to be real belief that we have broken the back of this crisis," noted Hughes.

"This new found optimism has led to the year-end rally in equities, that has turned a solid year in terms of performance into somewhat more impressive returns".

China's New Leaders

China's once-in-a-decade leadership change was one of the major Asian events this year which captured the attention of the financial markets across the globe. Market players kept a close watch on the high-profile 18th Party Congress of the communist regime for early indications on the economic policies of the new leadership.

China's economy had slowed down this year with the Gross Domestic Product (GDP) slipping to 7.4 in the third quarter, as the global economic woes continued to hurt its export-dependent economy. China had launched improved infrastructure spending plans and other initiatives to push funds into the markets in an attempt to boost economic growth.

These efforts appeared to pay off as economic indicators in the final months of the year showed growth picking up, prompting analysts to forecast better prospects for Chinese economy for the coming year. In a recent release, the World Bank noted that the Chinese economy could grow as much as 8.4 percent in 2013 from a projected rate of 7.9 in 2012.

The positive outlook lifted the Chinese markets higher towards the end of the year, also encouraging other bourses in the region.

"Now the corner has been turned we could see an out performance certainly in the first half of 2013 compared to the rest of the region".

Japan's Pro-Stimulus Government

It was more or less a weak year for the Japanese economy as exports slumped on waning global demand and Sino-Japanese relationships deteriorated over the Senkaku islands dispute. The country remained technically in recession as growth contracted 0.9 percent in the third quarter after having contracted 0.1 percent in the previous quarter.

Domestic and global economic concerns dampened Japanese investor sentiments and the benchmark Nikkei remained relatively weak from June to November. But markets started to pick up after the announcement of general elections.

The landslide victory of the Liberal Democratic Party (LDP), in line with the expectation of the markets, boosted investor hopes and lifted the Nikkei to fresh 2012 highs, its best gains in seven years.

Another Solid Year

Analysts are mostly bullish on Asian markets in the coming year.

As central banks look to hold interest rates low and governments willing to initiate further monetary easing measures, market players are expected to remain largely positive. Growth outlook remains more positive for some of the developing economies in the region despite external demand projected to remain weak.

"Emerging Asia will remain a bright spot in the global economy in 2013," said the UK-based Capital Economics in a research note published in December.

Analysts at ANZ suggest that due to the absence of large macroeconomic imbalances and decent domestic demand, countries such as India and China will remain steady.

But concerns do remain especially with bourses such as the Japanese as growth remains largely dependent on policy decisions. The LDP government's first budget, replacement of the BoJ governor and relationships with China and South Korea will be the points of focus for the market in the coming days.

Analysts at Nomura Research too agree that the Japanese equity markets may enter a directionless phase at some point, but suggest that LDP's pro-stimulus approach may boost market hopes.