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

Two major Asian indices, Hong Kong's Hang Seng Index Hong Kong HS50and Japan's Japan 225, have garnered significant attention this year. The Nikkei 225 has reclaimed its record high for the first time since 1989, marking a major milestone, while the Hang Seng Index is on track to achieve its best performance in seven years, shaking off the cloud of four consecutive years of decline.

Hang Seng index: A year of turnaround

2024 appears to be a turnaround year for the Hong Kong HS50 as it finally broke its four-year losing streak with a modest gain after a rollercoaster 12 months. However, lingering doubts remain about the recovery prospects for Hong Kong's markets.

Hong Kong HS50 stocks had their moment in the spotlight in April and September this year, becoming the best-performing market, even outperforming US markets, with monthly gains of 7.3% and 17.48%, respectively. On the flip side, the Hong Kong HS50 fell 9.1% in January and 3.8% in October, the worst two months of the year.

2025 outlook: economic slowdown and uncertainty cloud recovery path ahead

Looking ahead, there is growing anticipation of a continued slowdown in China's economic growth, with the IMF forecasting GDP growth below 4.5% in 2025 and further declines in 2026. Additionally, the start of the Trump 2.0 administration from early 2025 is poised to introduce more uncertainties and significant challenges to China's economic recovery and the stability of the region.

Overall, while the Hong Kong HS50's slide since 2020 may have found a bottom this year, the path to a convincing recovery is far from certain. Following a 36% rally since mid-September, the HSI has given back more than half of those gains, highlighting fragile investor confidence for the market.

Technical outlook for Hang Seng Index

From a technical perspective, despite a sharp pullback from its yearly peak (which is also the highest since January 2023), the price remains above the ascending trendline formed by the lows in January and August 2024. A breach of this trendline could signal a bearish shift in the mid to long term. Additionally, a notable crossover in the MACD could be an early sign that the ground is shaking for bulls. On the other hand, buyers will be looking for the price to break above the 20,161 level, the previous peak from July 2023, as a sign that the recent correction has ended.

Nikkei 225: A year of milestones

Japan’s benchmark stock index, the Japan 225, has experienced a dynamic and historic year in 2024. In the first half, the index broke its long-standing 1989 record high, a milestone driven by surging investor confidence in Japan’s equity markets. However, the optimism was tempered in the second half when, on August 5th, the Japan 225suffered a staggering 12% single-day drop—the largest in its history—following the Bank of Japan’s (BOJ) unexpectedly hawkish pivot in its late July meeting, which shocked market sentiment.

Outlook for 2025: optimism meets uncertainty

As the Japan 225 eyes continued gains in 2025, investor sentiment remains buoyed by Japan’s economic resilience and optimism on equity market recovery. However, uncertainties loom large. The BOJ’s anticipated interest rate hikes in 2025 are likely to heighten volatility, while Japan’s fragile economic momentum faces multiple external risks, including the escalating U.S.-China trade tensions and internal political instability. These factors may present headwinds to sustained bullishness in the Japanese equity market.

Overall, while the Japan 225’s performance this year highlights both resilience and vulnerability, its trajectory into 2025 will likely be a balancing act between favorable economic fundamentals and evolving macroeconomic uncertainties.

Technical Perspective: Testing the uptrend

From a technical analysis standpoint, the Japan 225 maintains its broader uptrend despite recent pullbacks. Key support levels remain intact, guided by ascending trendlines and major moving averages. A breach below the critical 37,000 level could signal a bearish reversal, with the potential for further downside.

Conversely, bullish investors could see a renewed push toward record highs if the index breaks through resistance around 39,425–40,000. Overcoming downward pressure from the recent trendline would be critical to sustaining upward momentum and retesting July’s peak.