Nvidia chip at Taipei Computex in Taipei, Taiwan, May 29, 2023.
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Asia-Pacific stocks had a strong run in 2024, with most major markets ending the year in positive territory as the region's central banks loosened monetary policy and the artificial intelligence boom lifted technology stocks.
Taiwan Taix recorded regional growth of 28.85% as of December 23, while Hong Kong Hang Seng Index second place with 16.63%.
Asia with success lowered inflation faster than the rest of the worldsaid Mike Shiao, former chief investment officer for Asia and former Japan at investment management firm Invesco, paving the way for monetary easing.
“With the Federal Reserve now entering its monetary easing cycle, Asian countries will have more room to cut interest rates in 2025.” – he stated in the note. Easier monetary policy tends to help stocks rise.
The market's focus on technology and technology-related stocks helped lift the Taiex index. Heavy A Taiwanese semiconductor company increased by 82.12% in 2024, and Apple's main supplier, Foxconn – sold as Hon Hai precision industry advanced 77.51%.
While demand for data centers and AI servers may decline Following this year's strong growth, demand for mobile phones, desktop computers and other AI-enabled consumer electronics may increase in 2025, according to DBS Bank's outlook note.
DBS noted that the global semiconductor sector typically experiences an expansion cycle of approximately 30 months. The current cycle, which started in September 2023, has the potential to extend until the end of 2025.
While tech stocks helped support Taiwan, they couldn't save South Korea, which was the only major Asian market to end the year in the red. The country's “business value program” appears to have failed to boost stocks amid concerns about tariffs and political turmoil increasing uncertainty.
Reference point for the country Kospi lost 8.03% as of December 23, making it the worst performing Asian market.
Major economies, particularly the US and China, will have a huge impact on South Korea's export-led economy, Paul Kim, chief equities officer at Eastspring Investments, said in the company's 2025 forecast.
“Major exporters such as IT equipment and car stereos may face challenges,” he added.
The impeachment of President Yoon Suk Yeol will undoubtedly have an impact on investors' minds, and Lorraine Tan, director of equity research for Asia at Morningstar, told CNBC earlier this year that “the longer the leadership change takes, the more likely it is that investors will be pushed out to the side track.”
Kim also said the government will play a key role in the country's markets, stressing that potential corporate regulatory reforms, fiscal stimulus and the possibility of further interest rate cuts by the Bank of Korea could help the business environment and boost domestic demand.
Perspectives 2025
According to George Maris, chief investment officer and global head of equities at Associate Asset Management, the two main areas that will occupy investors' minds in 2025 are Donald Trump's presidency and the state of the Chinese economy.
According to Nomura, the new Trump administration's policies are likely to impact Asia's growth and inflation prospects in 2025.. “We expect tariffs to increase early next year, which will lead to higher 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 may delay business investment in the region.
Manufacturing and trade-dependent economies such as those in Asia are likely to be more negatively impacted “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 Board he told CNBC.
Nomura forecasts that Asia will also face tougher global financial conditions in 2025 due to higher interest rates and a stronger dollar.
At its last meeting in 2024, the US Federal Reserve signaled that there would be fewer interest rate cuts in 2025, while raising inflation forecasts.
Nomura sees “divergent monetary policy prospects” across the region, saying countries such as China, Australia, South Korea and Indonesia, which are more exposed to currency risk, will see monetary policy easing in 2025.
Easy monetary policy tends to weaken a country's currency, making exports cheaper and potentially supporting growth in the face of tariffs.
On the other hand, countries with “strong economic growth, higher inflation and still benign monetary conditions,” such as Japan and Malaysia, will increase interest rates.
Overall, 2025 is associated with a lot of uncertainty, according to experts.
Nomura analysts write that “turmoil is coming” for the region, pointing out that while strong AI demand and export concentration should provide some growth support in the first quarter, the region “appears to be heading into rough seas” from the second quarter due to the impact Trump's presidency, China's overcapacity and the slowdown of the semiconductor cycle.
However, the company sees better growth performance in Asian economies with stronger domestic demand buffers, such as Malaysia and the Philippines, while India, Thailand and South Korea are likely to face headwinds.
China: challenges and opportunities
The health of the Chinese economy will also be a key area of interest for Asian investors, with investors looking for a “significant commitment to sustainable growth” in Asia's second-largest economy, Maris said.
In 2024, Chinese stock markets ended a three-year losing streak, with the CSI 300 index gaining 14.64% as Beijing focused on strengthening its economy.
Nomura analysts expect more stimulus from China to support its economy, while stressing that Beijing must stabilize its crisis-ridden real estate market, repair its fiscal system, strengthen social welfare support and ease geopolitical tensions to “achieve a true, lasting recovery.” economic”
“This is a tall order at a time when Chinese exports – the biggest driver of growth in 2024 – could face strong headwinds following Trump's return. While Beijing may stick to its GDP growth target of “around 5%,” we expect growth to slow to 4.0% in 2025 from 4.8% in 2024.” – Nomura said.
Maris sees opportunity in the world's second largest economy. He is “constructive” towards companies that deal with Chinese consumers.
He said these companies are often trading at attractive prices “given the preponderance of negative sentiment,” but if a government stimulus is forthcoming, these companies are likely to benefit from improved demand.