Asian shares fall as traders wait for more clues on the Fed’s rate cut path

Asia contributes about 70% of global economic growth and is home to several key stock market indices. Among the region’s developed economies, Japan’s Nikkei – which represents 225 companies on the Tokyo Stock Exchange – and South Korea’s Kospi stand out. China has three major indices: Hong Kong Hang Seng, Shanghai Composite and Shenzhen Composite. As a large emerging economy, Indian equities are also attracting the attention of investors, who are increasingly investing in companies in the Sensex and Nifty indices.

Asia’s main economies are different and each has specific sectors to focus on. Technology companies dominate indices in Japan, South Korea and, increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also high in China and Japan, with a strong focus on automotive or electronics manufacturing. The growing middle class in countries such as China and India is placing increasing importance on companies focused on retail and e-commerce.

Many different factors drive stock indices in Asia, but the main factor behind their performance is the aggregate results of their constituent companies, disclosed in their quarterly and annual earnings reports. Each country’s economic fundamentals, as well as the decisions of their central bank or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also have an impact on capital markets. The performance of US stock indexes is also a factor, as Asian markets often take the lead from Wall Street stocks overnight. Finally, the broader sense of risk in the markets also plays a role, as stocks are considered a risky investment compared to other investment options such as fixed income securities.

Investing in stocks is risky in itself, but investing in Asian stocks comes with region-specific risks that need to be considered. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their requirements for political stability, transparency, rule of law or corporate governance can diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also impact the valuation of Asian stock markets. This is especially true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.