Asia will need plenty of the snake’s traits to navigate through the complex terrain marked by trade tensions, policy shifts and structural shifts this year. After all, people born in the upcoming Year of the Snake are said to have wisdom, charm and a strong intuition, notes HSBC Global Research.
In 2025, trade looks set for a shakeup with an “inevitable” payback following last year’s record shipments. The US is also likely to impose new tariffs on its trading partners, with US President Donald Trump already planning tariffs on China, Mexico and Canada on Feb 1.
“For China, another rise in US import tariffs comes at an especially tricky time, with local demand far less robust than the first time around,” says the team in its report.
HSBC warns that reaching a deal or a truce may be more difficult this time around with the rationale for tariffs going beyond economic imbalances but veering into national security considerations.
In addition, the US may target other economies, such as Japan, Korea, Taiwan and Asean, which would then see trade flows and investments affected more than before. Nonetheless, Frederic Neumann, the bank’s chief Asia economist and co-head of global research Asia, still expects “resilient” growth in 2025 with a “barely reduced” forecast for the Asia ex-Japan region.
That said, he sees a shift in the region’s growth dynamic. China’s GDP is expected to slow down in 2025 with a 4.5% expansion, even though the country reported that it met its growth goal of 5% in 2024, mainly due to exports.
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Hong Kong’s economy is also likely to “dip a little” with declining interest rates unlikely to offset the drag from Mainland China. Meanwhile, Taiwan’s economy will “take a breather” after a strong 2024, although it should still see a “respectable” growth pace thanks to booming electronics.
HSBC sees the Bank of Japan (BOJ) pressing on with rate hikes as the country should see a better year. As the drag from the earlier inflation shock begins to fade, Japanese consumers should see an improvement in their purchasing power from fiscal support and rising wages. India should also see a gradual re-acceleration of growth.
As for Southeast Asia, the member countries should keep their growth rate steady, with HSBC maintaining its above-consensus projections of 4.8% growth for the Asean-6, which are Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
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Among the economies, Thailand will see growth aided by fiscal spending and more tourists. The Philippines is “heading back up” as it is more insulated than the rest from global trade friction. Indonesia, which is also unlikely to see much impact from global trade tensions, is likely to grow at its “customary pace” with its new president potentially injecting “renewed vitality”.
Meanwhile, Malaysia may “cool at the margin” due to tariff uncertainties, while Vietnam will likely see slower growth for the same reasons, although the latter will still lead Asean in terms of growth. In Neumann’s view, Malaysia and Vietnam are likely to remain resilient despite tariff risks as they don’t seem to be first in line for tariffs.
“By and large, we see growth being very resilient in the region and in many Asean economies. In particular, South Asia’s domestic consumption will support growth in an environment of increased uncertainty,” says Neumann.
“We think that consumption with lower inflation is still going to provide a bit of a lift and even if the [US] dollar remains stronger and the Federal Reserve might not deliver as many cuts as we would like, we still think there’s some room for rate cuts in Asia, which should ultimately help provide support for economies as well,” he adds.
Singapore stocks and economy
HSBC has kept Singapore’s 2025 GDP estimate at 2.6%. As the city-state closely monitors the impact of trade tensions, its services sector is likely to provide support.
Core inflation also eased to 2.1% y-o-y in October 2024. Leading economists Yun Liu and Madhurima Nag now expect 2024 core inflation to be 2.7% instead of 2.8% and for 2025 to ease further to 1.9%.
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Nonetheless, Liu and Nag note that the Monetary Authority of Singapore (MAS) is unlikely to ease its monetary policy in January. “After all, there is still uncertainty as the market waits for more clarity on concrete policy in President Trump’s second term,” they say.
Given the stickiness in core inflation, Liu and Nag’s base case is for the MAS to remain “on hold” in 2025.
In equities, HSBC is “underweight” Singapore, given its strong performance in 2024. Most of the returns came from 2H2024, with strong performances from the three Singapore banks.
The banks are likely to see their earnings “muted” over the next one to two years with the Fed continuing to cut rates. Instead, capital management will be the “key” to any upside in the banks’ shares, says Weldon Sng, HSBC analyst for Asean financials.
Overall, the Singapore market can see earnings grow by 3% in 2025 with negative contributions from the banks. Other sectors tipped for growth include the telcos, industrials and asset managers, especially the ones exposed to data centres.
Global equities
Across the world, shares in Mainland China are likely to see a recovery in 2025 while India sees slowing growth, says HSBC’s head of equity strategy in APAC, Herald van der Linde in HSBC’s equity strategy report for Asia dated Jan 9.
At the same briefing, van der Linde noted that while most investors have “sold out” Chinese equities amid poor sentiment, he believes that there is a longer story there with US$20 trillion ($27.04 trillion) of cash from people not willing to buy houses in the country.
He adds that at this rate, private sector companies are likely to give back their extra cash to shareholders since they don’t know where to invest it at this point.
Amongst the sectors, van der Linde likes companies that pay dividends and companies that are leaders in industries where there are “serious consolidation” taking place such as electric vehicles (EVs) and selected consumer goods.
Forex
In foreign currencies, the team is long on the US dollar (USD) against Asia, with Asian currencies under pressure for the past few years. This year is also likely to be the fifth consecutive year of depreciation, says Joey Chew, HSBC’s head of Asia FX research.
With Trump already introducing several executive decisions, Chew believes that the “combination of cyclical, fiscal, and political forces” will invigorate the USD, adding that she has already raised her USD/Asia forecasts in a note dated Nov 15, 2024.
Since the US election, Chew notes that the Thai baht (THB) and the Malaysian ringgit (MYR) have been underperformers in the region and probably exacerbated by the high base with their outperformance in 3Q.
Meanwhile, the Indonesian rupiah (INR) has depreciated the least thus far, which is in line with its compressed volatility since late 2022, Chew adds.
“For many others, their depreciation has been quite uniform. We think this is partly because there is little information at this juncture on the incoming US administration’s policy priorities and timelines,” she notes.
In a report dated Nov 26, 2024, Chew believes that the low-yielding and export-oriented currencies such as the Korean won, Singapore dollar, Taiwanese dollar and Thai baht are likely to come under more pressure than the high-yielding and domestic-driven currencies such as the Indonesian rupiah and Philippine peso.
While Chew highlighted the main challenges to come for Asian currencies including a more hawkish Fed, RMB depreciation on highly punitive tariffs, universal tariffs and sharp Euro depreciation, she believes that European currencies are likely to perform “slightly worse” than its Asian counterparts given the faster economic slowdown in Europe.
Plus, when it comes to currency defence, Asia has “a lot more tools in place”, which allows any depreciation to become more gradual, Chew added at the briefing.
Fixed income
Within the fixed income space, Steven Major, global head of fixed income research at HSBC, is bullish on US Treasuries due to its high real yields.
“Polar opposites are evident in [the] US versus China yields and the contrast between the beginning of last year and this one: higher yields propelled by reduced expectations of Fed easing,” Major writes in a Jan 8 report. “Three months ago, seven 25 basis points (bps) rate cuts were implied by the end of 2025, now it is just two. This explains the correction in the bond market.”
On the other hand, Major is “mildly bearish” on Singapore rates with local long-end bonds notably outperforming long-end US Treasuries over the last three years. As such, he believes a reversal is likely to be due as the Singapore government increases its bond issuance in 2025. Major and his team have kept their 10-year Singapore government securities (SGS) forecast at 2.5% for the year-end.
He also foresees the six-month compounded Singapore Overnight Rate Average (SORA) to fall to 2.1% by the end of the year with the overnight rate declining further alongside further rate cuts in the US.
In other markets, Major is “mildly bullish” on Chinese fixed income as he lowers his forecast for the 10-year China government bonds to 1.2% at the end of 2025, down from 1.8% previously.
“The main drivers are continued weakness in the credit impulse and central bank bond buying,” he says. “Since bond buying started last August, the People’s Bank of China (PBOC) has bought 40% of net supply. Next, we think there might be a bias to extending the purchases towards the long end to avoid front-end yields falling too low and undermining the currency.”
He is also “mildly bullish” for India government bonds this year. “The relatively low sensitivity of [India government bond] yields to global rates in December exhibits its superior emerging markets (EM) diversification attribute led by its high carry-vol characteristics.”
He remains neutral on Japan government bonds as he believes the Bank of Japan (BOJ) will hike the policy rate again, placing a floor on front-end Japanese yen (JPY) yields.
