Most Asian stock markets started the year on the back foot on Thursday, as investors braced for U.S. President-elect Donald Trump's return to the White House and the prospect of U.S. interest rates staying higher for longer.
MSCI's index of international emerging markets equities fell as much as 0.9% to its lowest level in nearly four months.
Taipei shares, which soared 28% in 2024 in their biggest annual gain in 15 years, lost 1.3%.
Stocks in Bangkok also fell 1.3%, while Kuala Lumpur and Manila equities were down 0.6% each.
Asia's worst performer last year South Korean shares fell 0.5%. Markets are focused on the new U.S. administration under Trump, who takes office on Jan. 20, and its policies around tax cuts, tariff hikes and tighter immigration, which will likely boost bond yields and the dollar.
Moreover, the possibility of U.S. rates staying higher for longer also raises the risk of stark rate differentials between the U.S. and emerging economies spurring capital outflows.
"A strengthening USD in a hawkish interest rate environment poses potential headwinds for ASEAN EM equities," DBS analysts said.
The analysts said equity trade flows in 2025 would likely be volatile, too, depending on the scale of a potential tariff war, especially between the U.S. and China, the interest rate outlook and the magnitude of China's stimulus plan. DBS analysts see a global tariff war having the most damaging impact on Thailand, potentially cutting its GDP growth by 0.3-0.8 of a percentage point.
Singapore's stock index would be the least volatile in a high-for-longer interest rate environment given its significant exposure to bank stocks, they added. Singapore shares were last largely flat, while the Singapore dollar gained 0.3%, after an advance estimate showed the city-state's economy posted its fastest annual pace of growth in 2024 since exiting the pandemic.
The Thai baht and the Philippine peso added 0.3% and 0.5%, respectively.
The South Korean won, which lost 14.3% last year, rose 0.3% after the country released policy plans to spur foreign inflows.
Bucking the trend, the Indonesian rupiah lost up to 1% to hit its lowest level in two weeks.
An official told Reuters that Indonesia's central bank intervened in the foreign exchange market to maintain a balance in supply and demand for the rupiah. Jeff Ng, head of Asia Macro Strategy at Sumitomo Mitsui Banking Corp, suggested that the rupiah might be catching up to year-end movements in other currencies.
HIGHLIGHTS:
** Indonesia's December inflation at 1.57% y/y, as expected
** Thai economic uncertainty has increased, central bank minutes say
** South Korea Dec factory activity shrinks as firms turn pessimistic, PMI shows - Reuters
