Short-term prospects for Asia and the Pacific have improved, with the International Monetary Fund (IMF) revising its 2024 regional growth forecast upward to 4.6%, reflecting strong performance earlier in the year. The region is projected to contribute 60% of global growth in 2024. However, challenges remain. Rising geopolitical tensions, uncertain global demand, and potential financial volatility present growing risks. So, what is the outlook for Asia markets in 2025?

The IMF expects growth in Asia to moderate to 4.4% in 2025, supported by accommodative monetary conditions. Economists from Goldman Sachs forecast modestly slower growth in EM Asia, a shift towards domestic demand in China, and pickups in a few developed markets.

According to Goldman Sachs, India, Indonesia, and the Philippines have the strongest growth prospects with an estimated 5-6.5% gross domestic product (GDP) growth over the next several years. They cite favourable demographics and more catch-up potential for the good prospects.

Nomura expects more turbulences for Asia in the year to come. “Into the first quarter, strong AI demand and export frontloading may support overall growth, but a sharper sequential moderation is likely from the second quarter due to weaker import demand, slowing semiconductor sales growth and softer domestic demand,” says the outlook of the Japanese financial holding company.

Nomura expects Asia ex-Japan GDP to slow to 3.9% y-o-y in 2025 from 4.3% in 2024.

Asia Equity Markets Outlook

Asian equities had a volatile 2024. Taiwan led the region, boosted by AI-driven earnings growth. Political uncertainty, a cyclical slowdown, and increased equity issuance offset India’s early gains. Mainland China faced deflation fears and property market challenges before rebounding on late-year stimulus. Japan’s stock market saw heights, while Korea underperformed due to a major stock de-rating. ASEAN markets showed mixed performance—Singapore and Malaysia thrived on strong banking earnings, while Indonesia and the Philippines struggled with tighter monetary policy.

Looking ahead, asset managers view Asian equities as a promising asset class for 2025.

Eastspring Investments emphasises long-term growth drivers such as increased capital expenditure, decarbonisation, and supply chain diversification. These factors, according to Vis Nayar, Chief Investment Officer at Eastspring, are poised to drive higher earnings. He also notes that ongoing corporate reforms are expected to further strengthen balance sheets, particularly in Japan.

Lombard Odier projects continued progress in Asian equities, identifying key opportunities in banking, wealth management, household consumption, travel, medical services, and technology.

Paras Anand, Chief Investment Officer at Artemis, highlights China as a key theme for 2025.

“I believe that what we are likely to see is increasing positive momentum and sentiment towards the Chinese economy and market as we go through 2025,” says Anand. He explains that China’s shift from a boom-and-bust economic model to one prioritising sustainable growth will likely foster greater confidence in emerging market equities and bonds.

Schroders remains cautious about the People’s Public, given the looming tariffs under a Trump 2.0 government in the US. “Mainland China will be most at risk given the fractured geopolitical landscape and will likely respond with further fiscal and monetary support. How China addresses its challenging property sector, consumer confidence, and deflationary pressures will be crucial to determining the outcome for earnings and market performance,” says Tom Clough, Fund Manager, Asian Equities at Schroders.

Asia Bond Markets Outlook

Amidst all volatility, Asian bonds proved to be resilient in 2024, and the outlook is upbeat. The domestic bond markets will likely benefit from the US Fed’s easing cycle and more rate cuts from regional central banks in Asia.

Yifei Ding, Fixed Income Senior Portfolio Manager at Invesco, highlights that as global economic growth slows, local central banks are likely to adopt more accommodative policies by reducing domestic rates. “This is likely to lead to upside opportunities in bond prices for investing into local currency government bonds,” Ding says.

Schroders’ Asia Fixed Income Team shares a similar sentiment, stating that the market’s pricing of rate cuts has become more realistic, making it an opportune time to modestly increase duration. Their strategy favours exposure to bonds in Indonesia, India, Mainland China, and the U.S. Furthermore, they emphasise that recent index inclusions for Indian and South Korean government bonds enhance the appeal of Asian local bonds, positioning them to attract significant structural inflows in the long term.

Jasmine Duan, Senior Investment Strategist at RBC Wealth Management, expresses a preference for Asian investment-grade bonds. While credit spreads remain tight, she notes that higher U.S. Treasury yields and a steeper Treasury curve create an attractive environment.

“Asian financial institutions, especially major banks, appear well-positioned to manage currency volatility and may benefit from an inflationary backdrop, in our view. Overall, firm demand for high total yields, moderate supply, and stable fundamentals underpin our cautiously optimistic outlook for Asian credit,” she adds.

This article was first published on AsiaFundManagers.com.