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An Nvidia chip during the Taipei Computex exhibition in Taipei, Taiwan, on May 29, 2023.
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Asia-Pacific stocks had a good run in 2024, with most major markets ending the year in positive territory as the region’s central banks eased monetary policy while a boom in artificial intelligence was elevating technology stocks.
Taiwan Quiet led gains in the region, up 28.85% since December 23, while Hong Kong Hang Seng Index came in second with 16.63%.
Asia with success has reduced inflation faster than the rest of the worldsaid Mike Shiao, chief investment officer for Asia ex-Japan at investment management firm Invesco, paving the way for monetary easing.
“With the Federal Reserve now starting its easing cycle, Asian countries have more room to lower interest rates in 2025,” he said in a note. Easier monetary policy tends to boost stocks.
The market’s focus on technologies and technology stocks, helped lift the Taiex. Heavy weights Taiwan Semiconductor Manufacturing Company increased 82.12% in 2024, and the main Apple supplier Foxconn – marketed as Hon Hai Precision Industry advanced 77.51%.
While the the demand for AI data centers and servers may moderate after strong growth this year, demand for AI-enabled mobile phones, PCs and other consumer electronics could increase in 2025, according to an outlook note from DBS Bank.
DBS noted that the global semiconductor sector typically has an expansion cycle that lasts about 30 months. The current cycle, which started in September 2023, has the potential to extend until the end of 2025.
While tech stocks helped lift Taiwan, they couldn’t save South Korea, which was the only major Asian market to end the year in negative territory. The country’s “Enterprise Value program” appears to have failed to boost stocks, with fears of tariffs and political unrest adding to the uncertainty.
The benchmark of the country Kospi lost 8.03% since December 23, making the Asian market worse.
Major economies, especially the United States and China, will have a big impact on South Korea’s export-led economy, Paul Kim, head of equities at Eastspring Investments, said in the 2025 outlook. of the company.
“Major exporters such as information technology hardware and auto players may face challenges,” he added.
The impeachment of President Yoon Suk Yeol will no doubt weigh on investors’ minds, with Lorraine Tan, director of equity research for Asia at Morningstar, telling CNBC earlier this year that “longer the harder the change in leadership, the more likely investors will be marginalized.”
Kim also said that the government will play a key role in the country’s markets, highlighting that potential reforms in corporate regulations, fiscal stimulus measures and the possibility of further tax cuts by the Bank of Korea could help the business environment and stimulate domestic demand.
Outlook 2025
Two major areas occupying investors’ mind space in 2025 will be the presidency of Donald Trump and the state of China’s economy, according to George Maris, chief investment officer and global head of equities at Principal Asset Management .
The policies of the incoming Trump administration will likely drive growth and inflation prospects in 2025 in Asia, according to Nomura.. “We expect a rate hike early next year that will lead to a pick-up in inflation and slower investment growth.”
Nomura said higher tariffs and trade barriers would mean weaker exports from Asia. Increased uncertainty and tit-for-tat retaliation could delay business investment in the region.
Manufacturing and trade-dependent economies, such as those in Asia, will likely be most negatively affected, “as tariffs lead to reduced trade flows and put downward pressure on growth,” Freida Tay, institutional fixed income portfolio manager at global investment manager MFS Investment. Management told CNBC.
Nomura predicts that Asia will also have to navigate tighter global financial conditions in 2025, due to higher rates and a stronger dollar.
In its last meeting in 2024, the Federal Reserve of the United States signaled that there will be fewer rate cuts in 2025, while it raised inflation forecasts.
Nomura sees “divergent monetary policy outlooks” across the region, saying countries such as China, Australia, South Korea and Indonesia that are more exposed to exchange rate risks will see monetary policy easing in 2025.
An easy monetary policy typically weakens a country’s currency, makes exports cheaper and potentially supports growth in the face of tariffs.
On the other hand, countries that have “strong growth, higher inflation and still accommodative monetary conditions” will raise rates, such as Japan and Malaysia.
In general, 2025 comes with a lot of uncertainty, according to experts.
Nomura analysts write that “turbulence is ahead” for the region, noting that while strong AI demand and export frontloading should provide growth support in the first quarter, the region “appears for rougher seas” from the second quarter, due to the impact of the Trump presidency, China’s overcapacity and a slowing semiconductor cycle.
The firm, however, sees superior growth performance in Asian economies with stronger domestic demand buffers, such as Malaysia and the Philippines, while India, Thailand and South Korea are likely facing headwinds.
China: challenges and opportunities
The state of China’s economy will also be a key area of focus for Asian investors, with traders looking at a “significant commitment to sustainable growth” in Asia’s second-largest economy, Maris said. .
In 2024, China’s stock markets snapped a three-year losing streak, with the CSI 300 gaining 14.64%, as Beijing focuses on supporting its economy.
Nomura analysts expect more stimulus from China to support its economy, while stressing that Beijing needs to stabilize its struggling real estate market, fix its tax system, strengthen social welfare support, and ease the geopolitical tensions to “achieve a real and sustainable recovery. .”
“This is a tall order at a time when China’s exports – the largest contributor to growth in 2024 – could face strong headwinds in the return of Trump. Although Beijing can adhere to the growth objective of the GDP “around 5%”, we expect growth to slow to 4.0% in 2025 from 4.8% in 2024,” Nomura said.
Maris sees an opportunity in the world’s second largest economy. It is “constructive” on companies with exposure to Chinese consumers.
He said these companies often trade at attractive valuations, “given the preponderance of negative sentiment,” but if the government’s stimulus were to go through, these companies would likely benefit from improved demand.
