Hong Kong-based Value Partners has just released its 2025 Market Outlook report, sharing its insights across different asset classes, regions and its preferred equity and fixed income investment themes.

Although inflationary and recessionary concerns in the US abated in 2024, investors continued to grapple with various uncertainties affecting global markets, including the outcome of the US presidential election in November, escalating geopolitical concerns in the Middle East, and growth concerns in China. However, Asian asset manager Value Partners highlighted how Asian financial markets proved to be resilient during the year and it expects the Chinese equity market to gradually recover in 2025.

While the direction of China’s government support for the economy remains clear, the next round of stimulus measures is expected to be announced in 2025. Value Partners believes that more stimulus will support growth, consumption, and stabilise the property market in the first half of 2025. “That said, investors will likely be defensive in the near term amid rising concerns of heavy tariffs on China,” the asset manager said. It believes that more and more Chinese companies may start some manufacturing activities in Southeast Asia in order to avoid potential tariffs.

The firm expects Hong Kong-listed equities, particularly those that are rate-sensitive, to be under pressure in the near term, given the uncertain US rate-cut path for 2025. As a result, A-shares will be favoured more over offshore-listed equities, although their valuations are more expensive.

Overall, Value Partners believes that the Chinese equity market will gradually recover in 2025 as earnings will likely bottom with a lower base effect. A deal coming out from US president Donald Trump and Chinese president Xi Jinping, as was the case in Trump’s previous term, should also be an upside surprise for the market.

The possibility of a rate cut in China remains high in 2025, given slow growth and deflationary pressures. With the US Fed’s pivot, Value Partners believes that the People’s Bank of China (PBOC) could ease monetary policy further, but there may be an upside on the Chinese government bond (CGB) yield, given the rising funding needs for fiscal stimulus in the medium term. The general low-rate setup should benefit Chinese investment grade corporates by allowing them to obtain cheaper onshore financing. Credit spreads of their offshore bonds trended lower for most of 2024 and are on the tight side given the limited dollar bond supply.

Taiwan
Value Partners remains constructive about the tech-heavy market of Taiwan, as the artificial intelligence (AI)/chip cycle is expected to continue to grow – at least in the first half of 2025. Although valuations are at the higher end, companies are supported by strong fundamentals. While tariffs from the US will have some impact on Taiwanese exporters, the more important concern is restrictions on exporting to China, as most of the tech companies in Taiwan have higher exports to China than to the US.

India
Countries with strong domestic growth, such as India, will be more muted from Trump's tariff threat. India should be relatively less exposed to US tariff risks, given that it is less export-oriented and more domestically focused. Strong economic growth and a stable macro backdrop create a goldilocks phase for India. Broad policy continuity and a softening of oil prices on slower global growth are tailwinds.

The space is dominated by non-bank finance companies (NBFCs) and renewables. NBFCs will continue to play an instrumental role in fulfilling India’s credit needs. Value partners is largely neutral on Indian high yield bonds, given their fair valuations and potentially more bond supply. Any consolidation in this space would present some investment opportunities. 

Indonesia
Value Partners believes that the Bank of Indonesia has some room to cut its policy rate further, given the lower inflation outlook and the need to boost economic growth. Indonesia’s consumption growth maintains its positive momentum. The country continues to promote loan growth, which is expected to reach 10 to 12 per cent for the full year of 2024. The asset manager believes this creates a positive backdrop for offshore bond issuers because they can benefit from lower onshore funding costs and have alternative funding channels for refinancing.

South Korea
South Korea will likely be range-bounded as its auto exports may be affected by higher US tariffs. In addition, the memory cycle outlook remains challenging, as the cycle seems to be nearing its peak. Also, with the US Federal Reserve pushing out the likelihood of further rate cuts, it will become more difficult for South Korea to cut interest rates to support its economy.

Japan and Australia
The strong US dollar helps Japanese equities as the Japanese yen will weaken. However, the potential tariff threat may offset this effect.

Japan and Australia investment grade bonds help expand the Asia bond universe and provide diversification benefits. In addition, their solid fundamentals support technicals.

Although some of the key concerns in 2024 may have diminished, Value Partners highlighted that new challenges and risks are on the horizon. “Vigilance will continue to be essential in this evolving landscape, where emerging economic and geopolitical factors could impact financial markets,” the asset manager concluded.

Value Partners, which was founded in 1993, has $6.4 billion of assets under management and is listed on the Main Board of the Hong Kong Stock Exchange. Besides its London office, the firm has headquarters in Hong Kong, and offices in Shanghai, Shenzhen, Beijing, Kuala Lumpur and Singapore. Its strategies cover equities, fixed income, multi-asset, and alternatives for institutional and individual clients in Asia Pacific, EMEA and the US.