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Asian markets’ 2H2025 performance ‘highly dependent’ on tariffs: Morningstar

Jovi Ho
Jovi Ho • 2 min read
Asian markets’ 2H2025 performance ‘highly dependent’ on tariffs: Morningstar
“Despite the fact that markets continue to rally, we would be cautious at this moment about adding more risky companies.” Photo: Bloomberg
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Markets have been volatile from January to April because of tariff uncertainty, but the Hang Seng Index (HSI) and Morningstar Asia Index are almost back to their 2025 highs from March since US President Donald Trump announced a trade war truce with China earlier this month.

Looking ahead, 2H2025 will be highly dependent on tariffs once again, says Kai Wang, Asia equity market strategist from Morningstar. However, tariffs may finally rear its ugly head, he adds. “We could see their consequences and whether earnings are under pressure as there are still headwinds to consumer confidence.”

Should the macro environment remain challenged in China, the fiscal policy China deploys will also shape the market, says Wang in comments released June 20. “If fiscal policy is muted and underwhelming, then markets will likely see a pullback.”

Over in Japan, interest rates will dictate book values of bank stocks in 2H2025, says Wang. “Interest rates will be dependent on US inflation and whether we expect multiple cuts in the back half.”

Wang foresees “further volatility ahead”. “We would overweight undervalued, high-quality, dividend-yielding stocks in defensive sectors given anticipation of further uncertainty. When the pendulum swings back the other way during upswing and recovery phases, we would overweight tech and communication services.”

Wang notes that it took “about a year” for the market to bottom during the first trade war, “but it eventually came back and recovered”. “We advise investors to not panic-sell [in] times of extreme volatility. Also, despite the fact that markets continue to rally, we would be cautious at this moment about adding more risky companies.”

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