(Bloomberg) -- Asian stock investors are relatively pessimistic for the start of 2025, citing concerns over Donald Trump’s pledge to boost tariffs and the risk of a stronger dollar.
Regional equities will trail their US peers at least through the first quarter, according to the majority of the 15 strategists and fund managers surveyed by Bloomberg in late December. They see Trump’s “America First” policies as boosting growth and inflation in the world’s biggest economy, supporting the dollar and limiting the scope for central banks to cut interest rates.
The MSCI Asia Pacific Index rose about 7% in 2024, less than a third of the S&P 500 Index’s 23% advance as a global artificial intelligence boom powered US mega-caps. Investors say Asia is unlikely to catch-up in the near future despite its record-low valuation against American stocks. Societe Generale SA expects “a bearish time” in the first quarter, while Maybank Securities Pte says softer local currencies will weigh on equity inflows.
“Asian equities are likely to face uncertainty brought on by the Trump administration’s new policies,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management Japan. “I don’t expect valuations to improve much in the first quarter.”
The MSCI Asia gauge is set to end March at 185, he said, which would make it less than 2% higher than the level it closed at the end of 2024.
While the outlook for Asia as a whole is grim, about half the respondents said they expected China to outperform its peers due to the government’s stimulus measures. Most of the negative factors have been priced in, and valuations remain low despite a rebound driven by Beijing’s stimulus blitz in late September, they said.
China’s benchmark CSI 300 Index climbed almost 15% last year, its first annual advance since 2020, with a bulk of the gains coming in the final quarter.
There’s potential upside for Chinese equities due to “investors underestimating the government’s commitment to boosting the domestic economy,” said Xin-Yao Ng, an investment director at abrdn Plc, who recommended buying quality consumer stocks. US tariffs may be less severe should Trump and President Xi Jinping strike a deal, he said.
About a third of the respondents said they expected Japan to outshine its regional counterparts again after the Topix Index rallied nearly 18% in 2024.
Japanese shares look attractive due to corporate earnings growth and “structural improvement” in the economy, said Jack Siu, head of discretionary portfolio management for Asia at Lombard Odier. Those who favor the country said the central bank’s rate-hike path is likely to be gradual.
The biggest risk facing Asia in the first quarter is the threat higher US tariffs, according to nearly 70% of the respondents. The others identified either geopolitical tensions, or the prospect of China stimulus measures falling short.
Investors should focus on companies with strong cash flows and balance sheets, as they are more capable of navigating higher-for-longer interest rates and adjusting to a new US tariff regime, according to Manulife Investment Management.
RBC Wealth Management Asia said investors shouldn’t be in a rush to buy.
“We would prefer more clarity on tariffs before adding more allocations to Asia equity,” said Jasmine Duan, senior investment strategist at the money manager. “Tariffs are the largest overhang for Asian equities at the moment. And tariffs are typically lose-lose.”
--With assistance from John Cheng, Youkyung Lee, Audrey Wan and Georgina McKay.
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