Analysts at Bank Julius Baer expect China and India to be the best performers in the Asian region in 2015, riding on various reform initiatives while Japan will benefit from its own quantitative easing programme and a shake-up in its pension fund asset allocations.

In its paper, Asian Financial Market Outlook 2015, the Swiss bank said China and India will lead the Asian region on a steady growth path and contribute considerably to a global growth figure of 3.6% in 2015. China and India are both reform stories, in differing degrees.

Mark Matthews, Bank Julius Baer’s head research Asia said: "China’s crackdown on corruption and pollution means slower growth, but that does not mean a slower market. As companies are told to focus on returns and corruption is staunched, cash flows should improve. Indeed the Shanghai Composite is showing signs of life after three listless years.

"We view it very reasonably priced on 7x forward price-to-earnings. India’s reform is one of removing the shackles of bureaucracy that have kept investment from key areas of the economy. With restrictions on foreign investment lifted in important sectors like insurance and railways, there is much room for improvement," the paper says.

In Japan, with the Bank of Japan continuing to expand its easing programme and the public pension funds pledging to substantially increase their domestic equity holdings, the Nikkei should rise next year.

Analysts at Bank Julius Baer noted that large companies are finally spinning off unprofitable businesses and focusing on the ones they are good at. On 13x forward price-to-earnings, valuations are reasonable.

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With the exception of mainland China, markets in Asia are highly correlated to the US and European markets. If they are bearish, it has traditionally been difficult for Asian markets to rise, the bank’s analyst opined.

In Asia, the Bank of Japan pledged in October to expand its already aggressive quantitative easing programme by a third, and the People’s Bank of China has cut interest rates in November for the first time in two years. Thus, the liquidity backdrop is conducive for Asian equities as well.

Julius Baer’s head of strategy research, Christoph Riniker, is looking for around 4% total return for the S&P and 7% for the German DAX next year, so the market backdrop is conducive for Asian equities.

Given the US and Europe are the two largest economies in the world, what their central banks do is impactful to Asian economies, markets, and currencies, the paper says.

US Federal Reserve dominated by economic liberals, positive but modest growth, and weak inflation, are all reasons why the ‘normalisation’ of interest rates in the US will be slow and small. Meanwhile, with an average economic growth rate of just 0.8% forecast for the eurozone in 2015, looser monetary conditions will remain for longer at the European Central Bank (ECB).

Recent collapse in oil prices is positive for Asia

Lastly, the paper noted that the collapse in oil prices is a tremendous benefit to almost all Asian economies. More people live in Asia than the rest of the world combined, yet the region is deficient in energy resources to provide to all those people.

The fall in the oil price will allow governments to remove costly subsidies, channeling money instead into sectors like healthcare, education, and infrastructure, which will have a very beneficial impact on their economies in the longer term.