[Market Updates] 2025 Quarter 1

Daniel Lee
Apr 3
5 min read

Updated: Apr 5

Lo and behold, 3 months have passed since the start of 2025. In this article, I’ll be sharing with you two major developments that are moving the market thus far.

China: Recovering Investor Confidence

Following a streak of positive developments – DeepSeek release in January, Mei Xue IPO in February and BYD’s Battery Breakthrough in March – investor confidence in China has since recovered, with investor capital flowing back into Chinese securities despite the trade angst from US tariffs.

Apart from the technological breakthroughs and spectacular IPOs, China’s economy also shows resilience to headwinds from the ongoing Trade war, supporting the case for investing in China with economic data thus far exceeds analyst estimates.

Why does this matter: Given China's role in Asia, a strong Chinese economy will have a positive spillover effect on neighboring economies. Increased trade, stronger consumer demand, and higher cross-border investments will help drive regional economic expansion, lifting corporate earnings and market sentiment across Asia.

Ultimately, as China's recovery gains momentum, it could serve as a key catalyst for a broader market rebound in Asia, attracting renewed investor interest and paving the way for a more sustained economic and stock market recovery in the region.

US: Slower Growth & Higher Inflation

The keyword from the Federal Reserve meeting for 2025 thus far has been: Uncertainty.

As a result of the policy changes effected by Donald Trump, the Federal Reserve officials have decided to hold their benchmark rate steady for a second straight meeting, caught between mounting concerns that the economy is slowing and that inflation could remain stubbornly high.

Officials have continued to pencil in half a percentage point rate cuts this year with eight officials seeing one reduction or fewer this year, increasing the risk of a higher for longer interest rate environment to combat the impact of a worsening trade war.

Recession odds have also moved up in 2025 with softening consumer spending and deteriorating consumer sentiment. Despite a worsening in sentiment, economic data thus far continues to point to a strong and healthy economy, which further reinforces the increasing uncertainty of the economic future of the United States.

Why does this matter: As recession risks in the U.S. rise, the impact is likely to ripple across global economies—particularly for countries that are heavily dependent on U.S. consumer demand and trade flows. A slowdown in U.S. consumption could weaken export-driven economies, dampening manufacturing activity and business investments worldwide.

From a market perspective, the combination of recession fears and historically elevated valuations in U.S. equities increases the risk of a broader price correction. Investors are beginning to adopt a more risk-off approach, reallocating capital away from high-priced assets and into safer alternatives.

As valuations edge closer to long-term averages, the probability of a market-wide adjustment in both the U.S. and global equities increases. If economic data continues to weaken, a downturn in U.S. markets could trigger a broader sell-off, amplifying volatility and further pressuring already fragile global financial conditions.

Long Story Short

Looking at how the markets have transpired thus far, it is likely that we may experience a reversion to mean in the markets. This would mean that investors would see a recovery in Asia equity and a correction in global equities given the valuation disparity between both markets.

Thus far, this seems to be panning out with the MSCI AC Asia Pacific Index registering around 3% upside while the S&P 500 registering a 5% downside.

That being said, the downside risk of a US recession should not be underestimated. As the saying goes: “When America sneezes, the world catches a cold”. Should a recession materialize, the downside pressure from the US may well cancel out the upside recovery experienced in Asia.

Regardless of what may materialize in 2025, the course of action for us as investors remains unchanged – and that is to focus our attention on what is to be in the next 10-15 years and not be distracted by the temporary distortion in the economy and markets.

Hopefully, the market will normalise without any major economic crisis. That said, only time will tell.

As usual, if you have any questions, you can PM me anytime. If not, I’ll catch you on our annual review.

Post Script: Start Of Trade War

Since writing the update, the United States have launched a full-scale protectionistic stance with tariffs imposed across the world. Currently, China has hit back with the same level of tariffs on the United States with more countries expected to follow suit.

As a result of this sudden heightened uncertainty and widespread pessimism regarding the impact of the trade war, the S&P 500 experienced a drawdown of around 10% while Asian equities experienced a drawdown of around 6% over the span of two days.

While this may seem scary for those who did not experience the COVID-19 drawdown (36% drawdown in 4 weeks), all I have to say is: This Too Shall Pass.

In the long run, drawdowns such as these are good for us, given that we are still very early in the accumulation journey, where accumulating investments at cheap and cheaper prices will go a long way for our longer-term returns.

In the short run, we can expect more pain to come given how overvalued the western markets already are to begin with. Hopefully, this episode will be a catalyst for the markets to revert to normalcy instead of one driven by pure speculation and sentiment without any regard for fundamentals.

A silver lining for this trade war would be the increasing motivation for countries to reduce their reliance on the United States and further deepen their trades with each other, which will boost the resiliency and growth sustainability of their economy in the long run. We're already seeing this pan out with countries who were previously at each other's throats agreeing to sit down for trade talks which was unprecedented.

For now, practice prudence with your financial plan and ensure that you do not overextend yourself or take risks that you cannot afford (e.g. committing to a condo with maximum leverage). A bear market is where long-term investors make their money, provided they are not forced to sell off due to financial circumstances or poor emotional control.

As far as we are concerned, I am confident that all of you who are invested with me have the capabilities to ride through this downcycle without any issue - If not, I'd have refused to invest for you to begin with.

As we've already managed what can be controlled through our prudent planning, what's left is for us to sit through this episode - or should I say through Trump's presidency?

Daniel is a Licensed Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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