China's bank lending in August more than doubled from the previous month
BENGALURU: 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 in 2017.
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.
BETTER 2017
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 poll.
"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. - Reuters
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