2025 Kicks Off With Losses in Asian Markets

Leading Asian economies, such as Japan and China, faced considerable challenges in 2024, driven by a combination of economic pressures, including housing crises, rising unemployment, and trade restrictions. These factors heavily impacted their economic performance, and as 2025 began, there was little sign of improvement in the Asian markets. Let’s delve deeper into the performance and key developments affecting Asian economies and markets:

Chinese Market’s New Year’s Losses

Chinese stocks kicked off the new year with losses, as the release of the Caixin/S&P Global Manufacturing Purchasing Managers' Index (PMI) signalled signs of an economic slowdown. 

The December PMI dropped to 50.5, below analysts' expectations of 51.7, indicating a deceleration in economic activity. The report, which tracks the performance of the manufacturing and services sectors, revealed that the pace of growth had slowed since November and remained marginal overall. This slowdown was largely attributed to ongoing uncertainties surrounding the global economic environment and trade, with additional concerns raised by the re-election of President Donald Trump, known for his hardline stance on trade bans.

As a result of this less-than-optimistic report, the CSI 300 index lost over 3%, and Hong Kong’s Hang Seng lost 2.4%.

Alibaba: Chinese Tech Giant’s Shifts Plans

In addition to the abovementioned indices, traders may want to monitor the latest news from Chinese tech giant Alibaba (BABA), which also traded lower on Thursday, 1 January, losing about 1% of its value.

This loss came a day after Alibaba announced that it would sell its majority stake in Sun Art Retail Group, a Chinese investment holding company, for $1.58 billion. While the selling price may sound astronomical to some, it is important to note that it is below the purchase price of $3.6 billion (in 2020). 

Additionally, BABA will offload Intime (its Chinese department store unit). According to the company, “the proceeds from the Disposal are currently intended to be used by our Company for business developments, shareholder returns and general corporate purposes.” It will be interesting to see how these developments will affect the company’s shares in the new year.

What’s Next For China?

While the future of the Chinese economy remains uncertain, some market experts suggest that Asia’s largest economy may be on the brink of recession this year. They emphasise that "policy stimulus will be crucial for economic growth in 2025." However, for consumption to recover, experts argue that a more substantial and effective stimulus will be necessary, though its implementation is still uncertain. 

Adding to this challenge is the increasingly volatile external environment, which has already begun to impact exports. Key factors such as rising US-China tensions, ongoing real estate troubles, persistently high youth unemployment, and weak consumer sentiment are all likely to influence the country's economic trajectory in the coming year. 

Yet, only time will reveal the future of China's economy. (Source: FXEmpire)

Mixed Updates From Japan

Japan is another economy to have suffered losses in 2024. In February 2024, it slipped into a recession and lost its status as the world’s third-largest economy to Germany. As a result, the Japanese yen lost over 10% in 2024 (marking its fourth consecutive yearly decline).

Despite the challenges faced in the previous year, the latest projections suggest that Japan's economy will experience steady growth in fiscal 2024 (beginning in April), with real GDP expected to exceed the previous year's performance. These forecasts are fueled by anticipated wage increases, rising prices, and expectations of interest rate hikes by the Bank of Japan (BOJ) in 2025. Additionally, the BOJ forecasts Japan's Gross Domestic Product (GDP) growth at 1.1% for fiscal 2025, with core consumer prices rising by 1.9%. 

However, some economists predict that core Consumer Price Index (CPI) growth may slow in 2025, potentially falling below the BOJ's 2% target in the latter half of the year. Private research institutions also highlight political uncertainties in Japan, especially following the ruling coalition's loss of its majority in the Lower House in October 2024. This has raised concerns about the potential negative effects on corporate investment if policy uncertainty persists. Moreover, there is growing uncertainty surrounding US policies under the Trump administration, including proposed tariffs, tax cuts, and stricter immigration measures. Trump's tariff plans and the possibility of retaliatory actions from other countries raise alarms about their potential impact on Japan’s economy and global trade.

Conclusion

In conclusion, 2024 was a challenging year for leading Asian economies like Japan and China, with ongoing pressures impacting growth. China's market began 2025 with losses, reflecting a slowdown, while Japan shows signs of recovery, though political instability and global trade uncertainties remain risks. Both countries face complex challenges, and their economic paths in 2025 will depend on how these issues evolve.