• Taiwan emerges as Asia's best-performing stock market in 2024, gaining 25.54% as of Dec. 23
• In contrast, South Korea was the worst, losing 8.03% over the year.
• Analysts say Trump's presidency and China's economy will be key to determining the direction of the Asian markets in 2025.

Asia-Pacific stocks had a good run in 2024, with most major markets ending the year in positive territory, as the region's central banks eased monetary policy while an AI boom lifted tech stocks.

Taiwan's Taiex led gains in the region, up 28.85% as of Dec. 23, while Hong Kong's Hang Seng Index came in second with 16.63%.

Asia successfully reduced inflation faster than the rest of the world, said Mike Shiao, chief investment officer for Asia ex-Japan at investment management firm Invesco, paving the way for monetary easing.

"With the Federal Reserve now having started its easing cycle, Asian countries will have more room to lower interest rates in 2025," he said in a note. An easier monetary policy tends to boost equities.

The market's focus on tech and tech-related stocks, helped lift the the Taiex. Heavyweights Taiwan Semiconductor Manufacturing Company soared 82.12% in 2024, and major Apple supplier Foxconn — traded as Hon Hai Precision Industry advanced 77.51%.

While the demand for AI data centers and servers may moderate after this year's strong surge, demand for AI-enabled mobile phones, PCs, and other consumer electronics could increase in 2025, according to an outlook note by DBS Bank.

DBS noted that the global semiconductor sector typically experiences an expansion cycle lasting around 30 months. The current cycle, which began in September 2023, has the potential to extend through the end of 2025.

While tech stocks helped lift Taiwan, they couldn't save South Korea, which was the only major Asian market to end the year in negative territory. The country's "Corporate Value-up program" appears to have failed to boost stocks, with tariff fears and political turmoil adding to uncertainty.

The country's benchmark Kospi lost 8.03% as of Dec. 23, making it the worst performing Asian market.

Major economies, particularly the U.S. and China, will greatly impact South Korea's exports-driven economy, Paul Kim, head of equities at Eastspring Investments, said in the firm's 2025 outlook.

"Major exporters such as information technology hardware and auto players may face challenges," he added.

The impeachment of president Yoon Suk Yeol will undoubtedly weigh on investors' minds, with Lorraine Tan, director of equity research for Asia at Morningstar telling CNBC earlier this year that "the longer the leadership change takes, the more likely investors will be sidelined."

Kim also said that the government will play a key role in the country's markets, highlighting that potential reforms in corporate regulations, fiscal stimulus measures and the possibility of further rate cuts by the Bank of Korea could help the business environment and stimulate domestic demand.

Outlook 2025

Two major areas that will occupy investors' mind space in 2025 will be the presidency of Donald Trump and the state of China's economy, according to George Maris, chief investment officer and global head of equities at Principal Asset Management.

The policies of the incoming Trump administration will likely drive the outlook for growth and inflation in 2025 in Asia, according to Nomura. "We expect a ramp-up in tariffs early next year that leads to a pickup in inflation and slower investment growth."

Nomura said that higher tariffs and trade barriers would mean weaker exports from Asia. Increased uncertainty and tit-for-tat retaliation might delay business investment in the region.

Manufacturing and trade-dependent economies, such as those in Asia, will likely be more negatively impacted, "as tariffs lead to reduced trade flows and put downward pressure on growth," Freida Tay, institutional fixed income portfolio manager at global investment manager MFS Investment Management told CNBC.

Nomura forecasts Asia will also have to navigate tighter global financial conditions in 2025, due to higher rates in and a stronger dollar.

In its last meeting in 2024, the U.S. Federal Reserve signaled that there will be fewer rate cuts in 2025, while it raised inflation forecasts.

Nomura sees "diverging monetary policy outlooks" across the region, saying that countries like China, Australia, South Korea and Indonesia which are more exposed to foreign exchange risks will see an easing of monetary policy in 2025.

An easy monetary policy typically weakens a country's currency, making exports cheaper and potentially supports growth in the face of tariffs.

On the other hand, countries that have "strong growth, higher inflation and still accommodative monetary conditions" will hike rates, such as Japan and Malaysia.

In general, 2025 comes with a lot of uncertainty, according to experts.

Nomura analysts write that "turbulence lies ahead" for the region, pointing out that while strong AI demand and export frontloading should provide some growth support in the first quarter, the region "appears headed for rougher seas" from the second quarter, due to the impact of Trump's presidency, China's overcapacity and a slowing semiconductor cycle.

The firm, however, sees growth outperformance in Asian economies with stronger domestic demand buffers such as Malaysia and the Philippines, whereas India, Thailand and South Korea are likely to face headwinds.

China: challenges and opportunities

The state of China's economy will also be a key focus area for Asian investors, with traders watching for a "meaningful commitment to sustainable growth" in Asia's second largest economy, Maris said.

In 2024, China's stock markets broke a three-year losing streak, with the CSI 300 gaining 14.64%, as Beijing focuses on shoring up its economy.

Nomura analysts expect more stimulus from China to support its economy, while highlighting that Beijing needs to stabilize its embattled property market, fix its fiscal system, beef-up social welfare support, and ease geopolitical tensions in order to "achieve a real, sustainable recovery."

"This is a tall order at a time when China's exports — the single-largest growth contributor in 2024 — could face strong headwinds on Trump's return. Though Beijing may stick to the "around 5%" GDP growth target, we expect growth to slow to 4.0% in 2025 from 4.8% in 2024," Nomura said.

Maris sees an opportunity in the world's second-largest economy. He is "constructive" on companies with exposure to Chinese consumers.

He said these companies frequently trade at attractive valuations, "given a preponderance of negative sentiment," but should government stimulus come through, these companies will likely benefit from improved demand.