Asian shares stumble as 2025 begins with focus on Trump's policies

Asian stocks began the year on a dour note on Thursday as they struggled for traction after a jittery close to 2024, while the dollar charged higher and investor sentiment stayed cautious ahead of Donald Trump's return to the White House.

The start of the New Year was shaping up to be a less favourable one for equities, as uncertainty over the policies of incoming President Trump and a more hawkish Federal Reserve outlook looked set to dominate the market rhetoric for now.

While global shares closed out 2024 with a strong yearly gain of nearly 16 per cent, they had clocked a monthly loss of more than 2 per cent in December.

The same was the case for MSCI's broadest index of Asia-Pacific shares outside Japan, which slid 1.2 per cent in December though registered a gain of more than 7 per cent for 2024.

The index was last down 0.5 per cent in the early Asian session on Thursday, with volume thinned given a trading holiday in Japan.

"I think we're now in a bit of a twilight zone between now and January 20," said IG market analyst Tony Sycamore.

Trump will be sworn in as president of the United States on Jan. 20 for his second term in office.

"It's very unusual for stocks not to get a positive December ... and that worries me a little bit, because when markets don't go up at times like this when they should be going up, it generally means that there are other concerns," said Sycamore.

"There's a pretty common consensus out there that Trump's going to run the economy red hot."

Chinese stocks similarly fell at the open, with the CSI300 blue-chip index last down 1.43 per cent while the Shanghai Composite Index lost 1 per cent.

Hong Kong's Hang Seng Index slid 1.74 per cent.

Investors are closely monitoring China's economic recovery in 2025 after officials pledged a slew of support measures to promote growth, though Trump's talk of tariffs in excess of 60 per cent on imports of Chinese goods could pose significant headwind.

"To avoid a more material slowdown as domestic obstacles and external pressures look set to mount, China will remain heavily reliant on policy support," said Yingrui Wang, China emerging market economist at AXA Investment Managers.

"With Donald Trump's return to the White House amplifying external risks and an already fragile domestic economy, a debt-deflation trap leading to a generational downturn could be perilously close if upcoming stimulus measures are delayed or misdirected."

Elsewhere, South Korea's KOSPI fell 0.07 per cent. The index was Asia's worst performer in 2024, with a loss of more than 22 per cent in dollar terms owing in part to a deepening political crisis.

Dollar shines

All that global uncertainty, along with expectations of fewer Fed interest rate cuts this year, left the safe-haven dollar on the front foot on Thursday.

A wide interest rate difference between the and other economies has cast a shadow over the foreign exchange market, resulting in most currencies declining sharply against the dollar in 2024.

The dollar rose 0.3 per cent to last trade at 157.43 yen, leaving the Japanese currency sliding toward its lowest level in more than five months.

The euro ticked 0.06 per cent higher to $1.0360 but strayed not too far from a more than one-month trough, while sterling eased 0.03 per cent to $1.2522.

Markets are now pricing in about 42 basis points worth of rate cuts from the Fed this year, compared with more than 100 bps from the European Central Bank and 60 bps from the Bank of England.

"We now expect the Fed to make just two 25 bps cuts in 2025 by skipping cuts in January and May, and instead cutting in March and possibly June," said Eli Lee, chief investment strategist at Bank of Singapore.

Trading of cash Treasuries was closed on Thursday owing to the Japan market holiday, but futures pointed to a rise in yields. Yields rise when bond prices fall.

"We see further upward pressure on long-dated Treasury yields and have a 12-month 10Y UST yield forecast of 5.00 per cent," said Lee.

In commodities, oil prices nudged higher on Thursday, with Brent crude futures up 0.56 per cent to $75.06 a barrel. West Texas Intermediate crude gained 0.6 per cent to $72.15.

Spot gold traded 0.4 per cent higher at $2,634.77 an ounce. The yellow metal had a banner year in 2024, surging more than 27 per cent in its largest annual gain since 2010.