Nikko Asset Management’s Asian Equity Team gives an update on the economic outlook for the region. Chinese policy is expected to support and stimulate consumption and business activities. Although volatility remains, markets have continued to recover recently following the de-escalation of the Trump administration’s “reciprocal” tariffs rhetoric. The most notable development was May’s US-China agreement, initiating a 90-day period of tariff reduction effective 14 May, from 145% to 30%.
Despite the easing of trade policy tensions, the situation remains uncertain. Against this backdrop, we expect Chinese policy support to stimulate consumption and business activities. We continue to see green shoots in China’s real estate market, which is showing signs of stabilising, along with a more active stock market rally from a low base.
Another reason to be constructive on Chinese equities is the positive liquidity dynamics in China. Low government bond yields reflect this positive liquidity environment and could prompt domestic institutions to redirect their capital to equity markets for better returns.
To that end, China’s securities regulator is further encouraging more investments in the equity market by unveiling measures for state-owned insurance firms to invest 30% of annual premiums from new policies in the domestic A-share markets. Despite ongoing uncertainty stemming from US tariffs and retaliatory measures from Beijing, there are encouraging signs that the situation may continue to improve.
We believe that India remains a compelling long-term investment opportunity despite the short-term challenges it faces. Pro-growth consumption policies and structural reforms may enable Indian companies to recover in the year ahead. We view the Indian market’s recent correction as a healthy occurrence that could present investors with opportunities to invest in some high-quality companies at more reasonable valuations. We still maintain a cautious view on India, given the challenges in earnings growth faced by its small-cap companies. However, we recognise that there are attractive large-cap companies in India with bottom-up drivers and more appealing valuations.
Despite recent political turmoil characterised by leadership instability and public protests, South Korea has delivered index returns nearing 20% year-to-date on the back of good corporate results and the “Value-up” programme. In South Korea’s early June election, the opposition’s Lee Jae-myung won the presidency after his predecessor Yoon Suk Yeol’s impeachment triggered months of chaos. The market’s focus should now shift to Lee’s policies aimed at boosting domestic growth, including his pledge for a supplementary budget. South Korean companies continue to expand globally and deliver solid returns at reasonable valuations.
The stock markets of South Korea and Taiwan are among the most sensitive to trade disruption, and we observe several companies already adapting to limit those risks. Tech-heavy Taiwan has been one of the region’s top performers over the last month, supported by export orders hitting a record high of USD 56.4 billion in April, driven by demand for artificial intelligence (AI) applications. Separately, the Taiwan dollar experienced a notable surge amid speculation that Washington pressured them to strengthen the currency in return for trade concessions. Taiwan’s central bank has since refuted claims that exchange rates were part of any US trade negotiations.
Looking at ASEAN markets, the region continues to face uncertainties regarding structural reforms and political stability, which have contributed to its significant underperformance relative to China year-to-date. Thailand stands out as a notable underperformer, with its index falling more than 12% due to declining foreign tourist numbers, high household debt, political uncertainty, and corporate scandals. In contrast, Indonesia’s index delivered a 3% return, recovering in May following positive political developments. Indonesia’s stability has been reinforced by the absence of major cabinet reshuffles and reduced military influence over state-owned banks.
Singapore and Malaysia are currently our preferred ASEAN markets, benefiting from relatively stable politics and tech-driven economic growth. Singapore’s ruling party recently secured a convincing general election victory, further supporting market confidence. We continue to believe that structural drivers of fundamental change remain intact across the region.
