Taiwan leads Asian stocks in 2024 — Trump tariffs, China economy cloud outlook

Asia-Pacific stocks performed well in 2024, with most major markets ending the year in positive territory, as central banks in the region eased monetary policy while an artificial intelligence (AI) boom lifted technology stocks.

Taiwan Tykes Stocks led gains in the region, up 28.85% as of December 23, while Hong Kong shares rose Hang Seng Index It came in second place with 16.63%.

Asia successfully Reducing inflation faster than the rest of the worldThis paves the way for monetary easing, said Mike Xiao, chief investment officer for Asia ex-Japan at investment management firm Invesco.

“With the Fed now starting its monetary easing cycle, Asian countries will have more room to cut interest rates in 2025,” he said in a note. Easy monetary policy tends to boost stocks.

The market’s focus on technology stocks and technology-related stocks helped the Taiex index rise. Heavy weights Taiwan Semiconductor Manufacturing Company rose 82.12% in 2024, Apple’s main supplier Foxconn traded as Hon Hai Precision Industry Advanced 77.51%.

while Demand for AI data centers and servers may be moderate After a strong rise this year, demand for mobile phones, computers and other AI-enabled consumer electronics could increase in 2025, according to a forecast note from DBS Bank.

DBS noted that the global semiconductor sector typically experiences an expansion cycle lasting about 30 months. The current cycle, which began in September 2023, has the potential to extend until the end of 2025.

While technology stocks helped lift Taiwan, they were unable to save South Korea, which was the only major Asian market to end the year in negative territory. The country’s “Corporate Valuation Programme” appears to have failed to boost inventories, given fears of tariffs and rising fears of customs duties. Political unrest increases uncertainty.

Country standard Cosby It lost 8.03% as of December 23, making it the worst-performing Asian market.

Major economies, especially the United States and China, will greatly impact South Korea’s export-led economy, Paul Kim, head of equities at Eastspring Investments, said in the company’s 2025 outlook.

“Major exporters such as IT equipment and automakers may face challenges,” he added.

The removal of President Yoon Suk-yul will undoubtedly weigh on investors’ minds, with Lauren Tan, director of Asia equity research at Morningstar, telling CNBC earlier this year that “the longer it takes for a leadership change, the more likely it is that investors will be marginalized.” “.

Kim also said 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 interest rate cuts by the Bank of Korea could help the business environment and stimulate domestic demand.

Two key areas that will occupy investors’ mind space in 2025 are Donald Trump’s presidency and the state of the Chinese economy, according to George Mares, chief investment officer and global head of equities at Principal Asset Management.

The incoming Trump administration’s policies are likely to drive growth and inflation expectations in 2025 in Asia, according to Nomura Bank.. “We expect an increase in tariffs early next year leading to higher inflation and slower investment growth.”

Nomura Bank said higher tariffs and trade barriers would mean weaker exports from Asia. Increased uncertainty and reciprocal retaliation may delay business investment in the region.

Trade-dependent industrialized economies, such as those in Asia, are likely to be more negatively affected, “as tariffs reduce trade flows and put downward pressure on growth,” said Frieda Tai, institutional fixed income portfolio manager at the investment management firm. Global MFS Investment. The administration told CNBC.

Nomura expects Asia will also have to navigate 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 He noted that there will be fewer interest rate cuts In 2025, while inflation expectations were raised.

Nomura sees “mixed monetary policy outlook” across the region, saying countries such as China, Australia, South Korea and Indonesia that are more exposed to foreign exchange risks will see monetary policy eased in 2025.

Loose monetary policy usually weakens a country’s currency, making exports cheaper and potentially supporting growth in the face of tariffs.

On the other hand, countries with “strong growth, higher inflation, and still loose monetary conditions” will raise interest rates, such as Japan and Malaysia.

Overall, 2025 comes with a lot of uncertainty, according to experts.

“Disruptions lie ahead” in the region, Nomura analysts write, noting that while strong AI demand and front-loading exports should provide some support for growth in the first quarter, the region “appears headed toward more rough seas” as of the quarter. Second, due to the impact of the Trump presidency, China’s spare capacity and the slowdown in the semiconductor cycle.

However, the company sees growth outperforming Asian economies with stronger domestic demand buffers such as Malaysia and the Philippines, while India, Thailand and South Korea are likely to face headwinds.

The state of China’s economy will also be a key area of ​​focus for Asian investors, Mares said, as traders monitor the “real commitment to sustainable growth” in Asia’s second-largest economy.

In 2024, Chinese stock markets break a three-year losing streak, with the CSI 300 rising 14.64%, as Beijing focuses on shoring up its economy.

Nomura analysts expect more stimulus from China to support its economy, highlighting that Beijing needs to stabilize its beleaguered real estate market, reform its financial system, boost social welfare support, and ease geopolitical tensions in order to “achieve a real and sustainable recovery.” “.

“This is extremely difficult at a time when China’s exports – the largest contributor to growth in 2024 – may face strong headwinds upon Trump’s return. Although Beijing may stick to its ‘around 5%’ GDP growth target, we expect it to slow.” Growth.” “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” about companies doing business with Chinese consumers.

These companies often trade at attractive valuations, “given the predominance of negative sentiment,” he said, but if government stimulus is implemented, these companies will likely benefit from improved demand.