Investing.com-- Japanese and Indian stock markets were the top performers in Asia through 2023, with a dovish Bank of Japan and optimism over the Indian economy acting as key points of support.

On the other hand, Chinese blue-chip stocks were the worst performers in the region, as persistent concerns over an economic rebound in the country saw investors pivot out of local markets.

Japan’s Nikkei outperforms in 2023

The Nikkei 225 was by far the best performer in Asia for the year, and was set for an over 30% gain after surging to 33-year highs earlier in the year. The Nikkei was also among the top performing indexes among its global peers, with the S&P 500 rising about 24% in comparison.

A dovish BOJ was a main point of support for Japanese stocks, as the bank largely maintained its ultra-dovish policies of yield control and asset purchases. The BOJ also kept interest rates at negative levels for a seventh year running.

Low interest rates, especially as interest rates rose in the rest of the world, drew foreign investors into Japanese markets, with sectors such as real estate and technology seeing strong inflows.

A batch of strong earnings, particularly from Japanese automakers and major trading houses, also bolstered the Nikkei.

But whether the Nikkei could extend gains into 2024 remained in question, especially as the BOJ flagged an eventual end to its ultra-dovish policies in the coming year. The Japanese economy also faces increased headwinds from slowing export demand.

India’s Nifty 50 second-best performer in Asia with series of record highs

Indian stocks also saw strong gains in 2023, especially towards the end of the year amid growing optimism over the Indian economy.

The Nifty 50 index was set to add nearly 19% this year, after hitting a series of record highs earlier in 2023.

Third-quarter GDP data showed the Indian economy grew 7%, vastly outpacing its global peers as manufacturing activity and consumer spending in the country picked up.

Optimism over the 2024 general elections- which are widely expected to result in a victory for the incumbent BJP party- also drove strong gains in Indian markets since late-November.

A bulk of India’s recent economic growth can be attributed to the pro-business policies rolled out by the BJP over its 10-year reign.

Still, further near-term gains in Indian markets remained doubtful, especially with blue-chip stocks prone to heavy profit taking at current valuations.

Broader Asian markets were also set for a strong 2023, with a bulk of gains coming in December as markets cheered an end to the Federal Reserve’s rate hike cycle.