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New Zealand, Taiwan stocks led Asia-Pacific surge in 2019

Asia-Pacific equities scored strong gains in 2019, with a number of major markets touching record highs on the back of accommodative monetary policy and a de-escalation in trade tensions between the U.S. and China.

The MSCI AC Asia Pacific All Cap Index, which tracks a broad range of equities across the region, climbed 16.3% in 2019 despite investor concerns over trade tensions and signs of slowing economic growth in China and across the globe.

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"The initial announcement of a likely U.S.-China trade deal and a market-friendly U.K. election outcome have boosted an already healthy risk appetite for Asian equities," Manishi Raychaudhuri, head of Asia-Pacific equity research at BNP Paribas, wrote in a report in December 2019. He added that a moderation of the U.S. dollar against developed and emerging market currencies, as well as expectations of earnings growth recovery for many companies in Asia, should provide support for stocks in the region this year.

New Zealand bulls

New Zealand shares led the gains across the region, with the S&P/NZX 50 gross index soaring 30.84%, its largest increase since its introduction in 2003. The Reserve Bank of New Zealand cut its benchmark official cash rate twice in 2019 by a total of 75 basis points to a new record low of 1%, and it has signaled that it is prepared to pursue further policy easing if necessary.

"With term deposits falling considerably, investors are looking to the equity market to provide a higher level of income via dividends," Mohandeep Singh, senior research analyst at Craigs Investment Partners, said in an email. A number of New Zealand companies with extensive offshore earnings also resonated with investors as they provide access to a clear theme, Singh noted, pointing to A2 Milk Co. Ltd.'s exposure to China's middle class and Mainfreight Ltd.'s role in global trade. Shares in both companies rose more than 35% in 2019.

New Zealand stocks' record performance in 2019 means returns are expected to be more modest in 2020, Singh said. He expects the central bank to either keep rates unchanged or cut only once during the year as more positive recent economic data and expectations of fiscal stimulus from the government take some pressure off the Reserve Bank to pursue further easing.

Greater China

The FTSE Taiwan Index rose 7.11% in Greater China in December 2019, capping off a year with a 30.27% increase. TAIEX, a separate index covering all stocks traded on the island, climbed 23.33% and reached its highest level since early 1990. The Shanghai Stock Exchange Composite Index climbed 22.3% despite investor concerns over Beijing's trade war with the U.S. and slowing growth. Most sectors in China showed increases, offsetting weaker performance in the energy industry, where PetroChina Co. Ltd. dropped 18.7% and China Petroleum & Chemical Corp. fell 13.3% amid volatility in the oil markets.

The Taiwanese equity market's outperformance of regional peers was mainly due to its electronics segment, with heavyweights Taiwan Semiconductor Co. Ltd. rising 46.78% and Hon Hai Precision Industry Co. Ltd. up 28.25%. Vincent Tsui, Asia analyst at Gavekal, said Taiwan has successfully gained market share in chip exports in recent years and has benefited from supply chain redistribution resulting from the trade war between Beijing and Washington.

Taiwanese stocks will also see support from loose monetary policy from central banks of developed markets and a reduction of trade risks, both of which will likely help drag the U.S. dollar lower and "set a tailwind for [emerging market] equities in general," Tsui said in an email.

"As such, we still see a bullish outlook for Taiwan equities in 2020, and breaking the 1990s record is likely," Tsui said. Politics, especially involving mainland China, is unlikely to affect equity performance on the island, and Tsai Ing-wen's reelection as president would likely see the status quo maintained in the relationship between Taiwan and mainland China, he added.

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"The Greater China markets were supposed to be the primary sufferers of the U.S.-China trade conflict," BNP Paribas' Raychaudhuri said. "Not only did they outperform, their outperformance was led by some of the export-intensive sectors, with Taiwan tech being a bright example."

The rise in Chinese stocks "shouldn't be too surprising" given that the country remains one of the fastest-growing economies in the world, supported by multiple accommodative actions by the People's Bank of China in 2019, equity strategists at Nikko Asset Management said in a note last month. The inclusion of mainland shares in global indices, such as those maintained by MSCI, could also continue to boost foreign interest in the country's stocks, they said.

Kuala Lumpur was the sole decliner among major Asia-Pacific markets in 2019, with the FTSE Bursa Malaysia Top 100 Index dropping 2.97% from the previous year.