Asian stocks 2025 outlook: Hong Kong and Japan face diverging paths in 2025

Nikkei 225 and Hang Seng rally

Two major Asian indices, Hong Kong's Hang Seng index (HSI) and Japan's Nikkei 225, have garnered significant attention this year. The Nikkei 225 reclaimed its record high for the first time since 1989, marking a historic milestone. Meanwhile, the HSI is on track for its best performance in seven years, shaking off the cloud of four consecutive years of decline.

HSI: a year of turnaround

2024 appears to be a year of recovery for the HSI as it finally broke its four-year losing streak with a modest gain after a rollercoaster 12 months. However, doubts remain regarding the sustainability of Hong Kong's market recovery.

HSI stocks surged to the spotlight in April and September, becoming the best-performing market globally. Gains of 7.3% and 17.48%, respectively, outperformed even US markets. On the downside, the index suffered steep losses of 9.1% in January and 3.8% in October, marking its two worst months of the year.

2025 outlook: economic slowdown and uncertainty

Looking forward, there is increasing concern over a continued slowdown in China’s economic growth. The IMF forecasts GDP growth below 4.5% in 2025, with further declines expected in 2026. Additionally, the Trump 2.0 administration, starting in early 2025, introduces potential headwinds for China's economic recovery and regional stability.

While the HSI's decline since 2020 may have found a bottom in 2024, the path to sustained recovery remains unclear. Following a 36% rally since mid-September, the index has relinquished more than half of those gains, reflecting fragile investor confidence.

Technical outlook for HSI

From a technical perspective, the HSI remains above the ascending trendline formed by the January and August 2024 lows, despite a sharp pullback from its yearly peak (the highest since January 2023). A breach of this trendline could signal a bearish shift in the mid to long term.

Additionally, a notable crossover in the MACD could indicate growing bearish momentum. Conversely, buyers will look for a break above 20,161, the previous peak from July 2023, as confirmation that the recent correction has ended.

HSI weekly chart

Nikkei 225: a year of milestones

Japan’s benchmark stock index, the Nikkei 225, has experienced a historic and dynamic year in 2024. In the first half, the index shattered its long-standing 1989 record high, buoyed by surging investor confidence in Japan’s equity markets. However, the optimism waned in the second half, particularly on 5 August, when the Nikkei 225 suffered a 12% single-day drop—the largest in its history. This decline followed the Bank of Japan’s (BOJ) unexpectedly hawkish stance during its late-July meeting, which unsettled market sentiment.

Outlook for 2025: optimism meets uncertainty

Heading into 2025, the Nikkei 225 shows potential for continued gains, supported by Japan’s economic resilience and positive equity market sentiment. However, risks remain prominent. Anticipated interest rate hikes from the BOJ in 2025 are expected to increase market volatility. Japan’s economic momentum also faces external challenges, such as escalating US-China trade tensions and internal political instability.

These factors could act as headwinds to the index’s ability to maintain its bullish trajectory.

Technical perspective: testing the uptrend

The Nikkei 225 continues to maintain its broader uptrend despite recent pullbacks. Key support levels are intact, guided by ascending trendlines and major moving averages. A breach below the critical 37,000 level could signal a bearish reversal, increasing the potential for further downside.

Conversely, bullish investors may find renewed confidence if the index breaks through resistance around 39,425–40,000. Overcoming downward pressure from the recent trendline would be crucial for sustaining upward momentum and retesting July’s peak.

Nikkei 225 daily chart