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A key gauge of Asian stocks is closing in on a record high as the region’s markets outperform global peers by the widest margin since 2017, driven by expectations of a US interest rate cut and continued weakness in the dollar.
The MSCI Asia-Pacific index neared a record high on Friday, boosted by rallies in China, Japan, South Korea and Taiwan. The index is outperforming the MSCI World gauge, which only tracks developed markets, by the widest margin in eight years.
Asian equities followed Wall Street higher after the S&P 500 closed at an all-time high on Thursday. Investors widely expect the US Federal Reserve to cut interest rates next week after August data showed slowing jobs growth.
“The market keeps going higher,” said Joshua Crabb, head of Asia-Pacific equities at Robeco. “Everything’s at highs.”
Benchmark indices in Japan, South Korea and Taiwan were at, or close to, record highs on Friday, as the three bourses include semiconductor groups crucial to the artificial intelligence boom.
Shares of South Korean chipmaker SK Hynix jumped more than 6 per cent to an all-time high after the company announced a milestone in its AI chip development.
Japan and South Korea have also been boosted by optimism over corporate governance reform drives meant to increase shareholder returns.
Foreign inflows into South Korean equities have risen since the country amended its commercial code in July to make explicit company directors’ duty to shareholders.
In Japan, foreign investment inflows rose sharply after US President Donald Trump’s “liberation day” tariffs announcement in April spurred investors to look outside the US.
While the S&P 500 is trading at record highs, it is underperforming other developed markets in a sign that investors are shifting assets out of the US into regions such as Europe and Asia.
The US is “expensive, everyone is really long and other things are doing better”, said Crabb. “People are having a look around.”
Global equities have also been helped by a weakening dollar, with an index tracking the US currency against global peers down 10 per cent in the year to date.
Nicholas Smith, Japan strategist at CLSA, noted that Japan had a net international investment position of $3.5tn and that investors could start to repatriate assets on signs that the yen would no longer weaken against the dollar.
“The big pot is the vast amount of Japanese money that got pushed offshore by zero yield at home. And the tipping point comes when the yen doesn’t weaken anymore,” said Smith.
Mark Headley, executive chair of investment manager Matthews Asia, wrote in an article last week that an “anywhere but America trade” was taking hold.
“Foreign markets have already begun outperforming the US markets in 2025,” he wrote. “This trend may end soon — or it may define the next decade of investing.”
