January 2025 Outlook: United States-Slightly Positive | Europe-Neutral | Japan-Neutral | China & Hong Kong-Neutral | Asia-Neutral

The S&P 500 has risen by more than 20% for two consecutive years, and it is expected that the pace of interest rate cuts will slow down in 2025. Europe has downgraded its economic forecast for 2025, expecting the pace of interest rate cuts to slow down. Both Russia and Ukraine have expressed willingness to start peace talks. The Nikkei Index has stabilized at 39,000 points, and the Yen depreciated by 11.5% in 2024. U.S. policies will be unfavorable for Japanese exports. The Hang Seng Index rose by 17.7% in 2024, and the Renminbi is expected to continue weakening for some time. Asian currencies are under pressure, and attention should be paid to the impact of Trump’s policies on Asian trade.

🇺🇸 United States-Slightly Positive
S&P 500 Rises Over 20% for Two Consecutive Years, Expected to Slow Down Rate Cuts in 2025
Although the three major U.S. stock indices fell in December 2024, the S&P 500 Index rose by 23.3% for the year, marking the second consecutive year of gains exceeding 20%. The Nasdaq Composite Index also recorded a 28.6% increase for the year. The Federal Reserve cut interest rates three times in 2024, totalling a 1.0% reduction. Due to the strengthening U.S. dollar, the market expects the pace of rate cuts to slow down, with only two rate cuts anticipated in 2025. According to Federal Reserve data, the median expected interest rate for December 2025 is 3.9%.

Trump’s “America First” policy is expected to support domestic businesses and markets in 2025. In terms of national sovereignty, Trump has expressed intentions to strengthen U.S. control over the Panama Canal to safeguard American trade and national security interests, which is expected to pose geopolitical risks. Additionally, in early January, the U.S. included more than 130 Chinese entities, including Tencent, in the “Chinese Military Companies” blacklist, leading to increased tensions in U.S.-China relations. While the “America First” policy could drive growth in the U.S. market, investors should also be aware of the associated risks.

🇪🇺 Europe-Neutral
Europe Lowers 2025 Economic Forecast, Expected to Slow Down Rate Cuts, Russia and Ukraine Express Willingness to Start Peace Talks
The MSCI Europe Index rose by approximately 5.8% in 2024. The Eurozone’s GDP for Q3 2024 (YoY) was 0.9%, meeting expectations, but the European Central Bank (ECB) has lowered Europe’s 2025 GDP growth forecast by 0.2%.

Due to economic weakness, the ECB cut interest rates four times in 2024 by a total of 1% to stimulate the economy. Inflation has also fallen with the rate cuts, and the ECB expects the CPI growth rate to decrease by 0.3% to 2.1% in 2025. However, Christine Lagarde, the President of ECB, stated that due to the high inflation in the services sector, the pace of future rate cuts may slow down.

Regarding the Russia-Ukraine war, both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky have expressed willingness to end the war through diplomatic means. The Trump administration also plans to assist both parties in starting peace talks in January 2025, but the outcome is uncertain. Investors should closely monitor economic changes and war developments and invest cautiously in Europe.

🇯🇵 Japan-Neutral
Nikkei Stabilizes at 39,000 Points, Yen Depreciated by 11.5% in 2024, U.S. Policies Expected to Harm Japanese Exports
The Nikkei 225 Index rose by 19.2% in 2024, reaching 39,894 points by the end of the year and stabilizing above 39,000 points in early January 2025. The Bank of Japan ended its eight-year negative interest rate policy in 2024, raising the rate to 0.25%. The Yen depreciated by 11.5% in 2024, with the USD/JPY exchange rate rising from 150 in early December 2024 to 158 in early January 2025.

In terms of economic data, Japan’s GDP for Q3 2024 (YoY) was 0.9%, exceeding expectations. Kazuo Ueda, the Governor of Bank of Japan, stated that if economic and price conditions continue to improve in 2025, the bank will consider raising interest rates.

Despite positive economic data, Trump’s protectionism and tariff policies are expected to impact Japanese exports, particularly in the automotive industry. Politically, the cabinet approval rating of Shigeru Ishiba, the Prime Minister of Japan, has fallen to 41%, which could hinder Japan’s governance. Investors should closely monitor changes in Japan’s economic and export policies and invest cautiously in Japan.

🇨🇳 China & Hong Kong-Neutral
China & HK Indices Performed Well in 2024, Mainland to Adopt “Moderately Loose” Monetary Policy to Boost Economic Growth in 2025
In the stock market, benefiting from the central government’s coordinated economic stimulus package in September 2024, both the Hang Seng Index and the CSI 300 Index performed well. The Hang Seng Index rose from 17,047 points to 20,060 points in 2024, an increase of 17.7%. The CSI 300 Index rose from 3,431 points to 3,935 points, an increase of 14.7%. In terms of the RMB exchange rate, due to the strengthening of the U.S. dollar, the RMB depreciated by 2.8% in 2024, with the USD/RMB exchange rate weakening from 7.25 in early December 2024 to 7.33 in early January 2025.

The People’s Bank of China stated that it will adopt a “moderately loose” monetary policy in 2025 to stimulate domestic demand and promote economic growth. Additionally, to counter the threat of increased tariffs by Trump, the market believes that the authorities will allow greater depreciation of the RMB, and the RMB is expected to continue weakening for some time. In early January 2025, both major indices experienced slight corrections. The Hang Seng Index hovered around 19,300 points in early January, while the CSI 300 Index hovered around 3,700 points.

The 14th National People’s Congress will convene its third session on March 5, 2025. Policies are expected to focus on responding to the impact of Trump’s administration and stimulating domestic demand. Investors should closely monitor these developments and make appropriate allocations based on market conditions.

Asia-Neutral
Asian Currencies Under Pressure, Need to Watch Trump’s Policy Impact on Asian Trade
The MSCI Asia Index (excluding Japan) rose by 9.8% in 2024, performing well. However, due to the strong U.S. dollar, Asian currencies are under pressure. In 2024, the Indian Rupee, Singapore Dollar, Indonesian Rupiah, and South Korean Won depreciated against the U.S. dollar by 2.8%, 3.3%, 4.4%, and 12.5%, respectively.

The tariff policies, strong dollar policy, and Panama Canal policy of U.S. President-elect Trump are expected to affect the global supply chain structure, potentially increasing transportation and trade costs for Asian countries. Economic growth in the Asian region may face challenges in 2025.

To counter the strong dollar policy, more Asian countries have joined the BRICS organization in recent years, promoting the use of local currencies in international trade to reduce reliance on the U.S. dollar. For example, Indonesia joined BRICS in January 2025.

Investors should closely monitor the impact of Trump’s policies on Asian trade and the trends in various regions, making cautious adjustments in Asia.

－ The End －

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