Asian Stocks and Dollar Hold Strong in 2024

As the year 2024 comes to a close, Asian stocks and the dollar have proven their resilience, closing out a strong year despite geopolitical uncertainties and economic headwinds. The region's markets have shown remarkable fortitude, with most major indices finishing the year in positive territory.

The dollar's appreciation in 2024, driven by rising Treasury yields and expectations of fewer U.S. rate cuts, has had a significant impact on Asian markets. The dollar index (DXY) rose by 6.6% in 2024, reaching a two-year high in December. This appreciation put pressure on Asian currencies, with the yen dropping to its lowest levels since July, and the euro set for a 5.7% decline against the dollar.

However, Asian stocks have managed to hold their own, with many markets finishing the year in positive territory. Taiwan's Taiex led the gains in the region, up 30% as of December 25, while Hong Kong's Hang Seng Index grabbed second place with a 19.71% increase. Tech stocks were a major contributor to Taiex's performance, with heavyweights such as Taiwan Semiconductor Manufacturing Company (TSMC) and Apple supplier Foxconn (Hon Hai Precision Industry) soaring by 82.12% and 77.51%, respectively.

The strong performance of Asian stocks can be attributed to a combination of factors, including the AI boom, central bank policies, and improved corporate governance standards. The AI boom, in particular, has driven up the Taiwan Weighted Index by 28% in the first half of the year, benefitting tech stocks along the AI value chain. Central banks easing monetary policies has also contributed to the positive performance of Asian stocks, with the Bank of Japan maintaining its accommodative monetary policy to support risk assets like Japanese equities.

Looking ahead to 2025, geopolitical factors such as the presidency of Donald Trump and the state of China's economy will weigh heavily on the outlook for Asian markets. Uncertainty looms as experts predict turbulence in the second quarter due to the potential impact of Trump's policies, slowing semiconductor cycles, and China's overcapacity issues. Nomura expects the Trump administration to ramp up tariffs, which could exacerbate inflation and slow investment growth, particularly in manufacturing and trade-dependent economies like those in Asia.

However, countries with stronger domestic demand buffers, such as Malaysia and the Philippines, are expected to outperform, while economies more exposed to foreign exchange risks, like China, South Korea, and Indonesia, might face headwinds. The overall outlook for Asian markets in 2025 remains uncertain, with potential turbulence ahead due to factors such as Trump's presidency, China's overcapacity issues, and a slowing semiconductor cycle.

In conclusion, Asian stocks and the dollar have held their own in 2024, closing out a strong year despite geopolitical uncertainties and economic headwinds. The region's markets have shown remarkable fortitude, with most major indices finishing the year in positive territory. However, the outlook for 2025 remains uncertain, with potential turbulence ahead due to geopolitical factors and economic trends. Investors should remain vigilant and adapt their strategies accordingly to navigate the challenges and opportunities that lie ahead.