Last week, the Asia-Pacific stock markets showed a divergence, with Japanese and Korean stocks experiencing the most significant declines.

As of last Friday's closing, the Japanese stock market ended its two-day decline, with the Nikkei 225 index once rising by more than 270 points, regaining the 39,000 level, but it failed to stabilize at the close, resulting in a weekly decline of 1.58% or 624.05 points. The South Korean stock market fell for the third consecutive day, with the KOSPI index breaking below the 2,600-point level, slightly down by 0.58% for the week, closing at 2,594.11 points. The Australian S&P/ASX 200 index rose by 0.84% or 68.7 points for the week, closing at 8,283.2 points, marking a second consecutive week of gains.

Most Southeast Asian stock markets rose. As of last Friday, the Indonesia Jakarta Composite Index (JKSE) increased by 3.18% or 239.46 points for the week, closing at 7,760.06 points; the Malaysia Kuala Lumpur Composite Index slightly fell by 0.76% for the week, closing at 1,645.99 points; the Singapore Straits Index rose by 1.86% or 66.43 points for the week, closing at 3,640.19 points; the Philippines Manila Index reported at 7,415.73 points, increasing by 1.44% or 105.41 points for the week; the Thailand SET Index rose by 1.34% for the week, closing at 1,489.82 points; the Vietnam Ho Chi Minh Index fell by 0.23% for the week, closing at 1,285.46 points.

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Zheng Xiaojia, an associate professor at the School of International Trade and Economics, University of International Business and Economics, told a reporter from 21st Century Economic Report that the widespread rise in Southeast Asian stock markets last week was due to multiple factors. First, there was an improvement in the external financial environment. Recent expectations of interest rate cuts in the United States have boosted confidence in the Southeast Asian market. The Federal Reserve's policy shift towards easing has driven capital towards more attractive emerging markets, leading investors to reallocate funds to Southeast Asian stock markets, thus fueling the rise in local stock markets. Second, policies in Southeast Asian countries have led to a rise in stock markets, such as the Bank of Thailand's announcement on the 16th to cut interest rates by 25 basis points, which exceeded expectations and increased market liquidity in the short term, enhancing the activity of domestic investors and driving funds into the stock market, thereby raising stock prices.

Thailand unexpectedly implemented its first interest rate cut in over three years.

Over the past week, most Southeast Asian stock markets recorded a slight increase.

Bai Wenxi, Chief Economist for China at the China Enterprise Capital Alliance, told a reporter from 21st Century Economic Report that after the Federal Reserve's interest rate cut, the attractiveness of U.S. dollar assets relatively declined, and international capital is reconfiguring assets globally. The Southeast Asian region, with its stable growth, has attracted international capital inflows, which has pushed up the stock asset prices in the region in the short term.

Data shows that the largest stock market increase last week was the Indonesia Composite Index, followed by the Singapore Straits Index. It is worth noting that the Singapore stock market had been performing poorly, with specific manifestations such as a decline in trading volume and a reduction in the number of IPOs. Data indicates that in the first half of this year, there was only one IPO on the Singapore Exchange.Singapore's stock market has shown a significant uptrend, driven by the country's robust economic recovery, which has bolstered market confidence. On October 14th, data released by Singapore's Ministry of Trade and Industry indicated that Singapore's economy is accelerating its expansion, with the Gross Domestic Product (GDP) for the third quarter of this year growing by 4.1% year-on-year, higher than the 2.9% increase in the second quarter. "Due to factors such as the current improvement in the international financial environment and the gradual recovery of overseas demand for electronic products following the continuous improvement of the technology cycle, Singapore's GDP indicators for the third quarter have exceeded expectations. This positive signal has also stimulated Singapore's stock market, leading to an overall rise in local stock prices," said Zheng Xiaojia.

In September of this year, Singapore prepared for a "bold reform" of its regulatory structure to revive the sluggish stock market. The measures included cooperating with Temasek to establish a cornerstone fund to support the IPOs of high-growth companies, introducing new corporate structures and stock categories to promote listings, and increasing research coverage of listed companies. The aim of these measures is to attract more high-quality companies to list in Singapore and to create a more dynamic and liquid market environment. Bai Wenxi believes that these measures will help enhance the competitiveness and vitality of Singapore's stock market, strengthen regulatory systems, aid market growth, and establish investor confidence.

Additionally, the focus of the market last week was also on the unexpected interest rate cut by the Bank of Thailand. On October 16th, the Bank of Thailand unexpectedly announced a 25 basis point cut in the key interest rate to 2.25%, marking the first rate cut for Southeast Asia's second-largest economy since May 2020.

Zheng Xiaojia analyzed that the unexpected interest rate cut by the Bank of Thailand triggered a stock market rise, mainly because the market anticipated that the rate cut would increase liquidity and stimulate economic activity. However, the Bank of Thailand faces a complex balancing act: on one hand, the rate cut can stimulate domestic investment and consumption; on the other hand, the rate cut may exacerbate domestic inflationary pressures and bring depreciation pressure on the Thai baht exchange rate, increasing import costs and further driving up prices.

Some analyses suggest that Southeast Asian stock markets may continue to benefit under the expectation of a rate cut by the Federal Reserve. Zheng Xiaojia stated that this is because the Federal Reserve's low-interest-rate policy usually leads to more foreign capital inflow into Southeast Asian markets. However, Southeast Asian stock markets still face risks. She indicated that countries like Thailand need to carefully balance domestic economic needs with the challenges of monetary policy. Although rate cuts can help stimulate economic growth, if inflation gets out of control or capital outflows occur, it may weaken the strength of economic recovery. Moreover, the global economic outlook, geopolitical risks, and the fiscal policies and balance of payments of Southeast Asian countries will all affect the future performance of Southeast Asian stock markets.

Asian Currencies Strengthen

Recently, although Asian currencies have seen a slight decline against the US dollar, they still remain at high levels. According to a Bloomberg industry report, as of October 7th, five out of the six best-performing currencies in emerging markets this year are from Asia, without distinguishing between onshore and offshore renminbi. The Malaysian ringgit performed the best. Asian currencies have overall outperformed other emerging market currencies, and if the Federal Reserve continues to cut interest rates, putting pressure on the US dollar, this could continue to be a dominant theme in 2025. Among emerging market currencies, Asian currencies tend to perform well during the Federal Reserve's interest rate cut cycles.Bloomberg Intelligence's Chief Asia FX and Rates Strategist, Stephen Chiu, analyzed that in an environment of high yields, the interest rate differential attractiveness of Asian currencies relative to the US dollar could be a decisive factor affecting their relative performance. Ranking the actual interest rate differential attractiveness of each economy's currency based on the Carry Trade Volatility (CTV) ratio, the Indonesian Rupiah and Thai Baht may perform relatively well.

Zheng Xiaojia told reporters that the general strengthening of Asian currencies against the US dollar can be attributed to multiple factors, and the short-term and long-term trends may differ. In the short term, this appreciation trend is mainly due to expectations that the Federal Reserve may cut interest rates, reducing market demand for the US dollar and increasing capital inflows into emerging markets, thereby raising the exchange rates of Asian currencies.

However, the exchange rates of Asian currencies may be influenced by a combination of factors in the future, and the long-term trend may be more complex. Zheng Xiaojia stated that global inflation levels, changes in US monetary policy, and the possibility of central banks in some Asian countries intervening in the market to stabilize or enhance the value of their currencies could all disrupt the long-term trend of exchange rates. Therefore, considering the multiple effects of Federal Reserve policy, the global economic environment, and domestic policies of various countries, the future trend of Asian currencies remains to be seen.

Significant fluctuations in Japanese and Korean stock markets

Recently, the stock markets of Japan and Korea have continued to fluctuate. The decline in Japanese and Korean stocks last week was related to negative news about chip stocks.

Wang Ningyuan, a researcher at the Bank of China Research Institute, told a reporter from the 21st Century Economic Report that the decline in the South Korean stock market is related to the uncertainty of the global semiconductor demand outlook. Semiconductors are a pillar industry in South Korea, with Samsung Electronics and SK Hynix being leading companies and playing an important role in the South Korean economy. According to South Korean data, the slowdown in the export growth of its tech products may indicate that global semiconductor demand is peaking. The performance of South Korean semiconductor companies is correspondingly affected. In the third quarter of 2024, Samsung Electronics' operating profit and revenue did not meet market expectations, raising doubts about the prospects of its chip business, and foreign capital has shown signs of selling off South Korean stocks. South Korean chip stocks fell, with both SK Hynix and Samsung Electronics declining. In addition, Wang Ningyuan believes that the South Korean central bank's easing monetary policy path will also affect the trend of the South Korean stock market.

Similarly, the Japanese stock market is also dragged down by negative semiconductor news. According to the latest financial report released by Dutch semiconductor equipment giant ASML, the order volume in the third quarter and the sales forecast for 2025 were both below expectations. Cao Hongyu, a researcher at the Bank of China Research Institute, told reporters that this news caused ASML's stock price to plummet and had a significant impact on the stock prices of the US and Japanese and Korean semiconductor industries, affecting the overall performance of the Japanese and Korean stock markets.

It is predicted that changes in the expectations of the Bank of Japan's interest rate hikes will also disturb the trend of the Japanese stock market.Data from Japan's Ministry of Finance shows that Japan's exports in September decreased by 1.7% year-on-year, marking the first decline in ten months. Cao Hongyu stated to reporters that since 2024, external demand has been a drag on Japan's economy. Along with the weakening export situation, the unfavorable factors facing Japan's economic growth may further intensify. The stronger yen exchange rate caused by the Bank of Japan's interest rate hike has, to some extent, weakened the price advantage of Japanese export goods, becoming an important reason for the recent weakening of Japan's exports. Considering this factor, the Bank of Japan may adopt a more cautious attitude towards interest rate hikes.