Q2 2025 Update from the Asia Trade Floor
Jingjing Huang: Hello and welcome to our Asia Trade Floor update with Stephen Chang, PIMCO’s Asia portfolio manager.
Stephen, let’s start by sharing a quick recap of how global markets have been impacted by the latest U.S. tariff policies.
Stephen Chang: Thanks, Jingjing. President Trump’s tariff announcements have caused major market turbulence, as investors reacted to a much larger than expected rise in the U.S. effective tariff rate.
Asian stock markets have been hard hit because they rely on exports to the U.S., while U.S. and European stock markets also faced substantial losses, reflecting fears of a global economic slowdown and potential recession.
This situation also challenges the idea of "U.S. exceptionalism," which is the belief that the U.S. economy is uniquely strong and resilient. With these changes, the U.S. dollar might become less attractive, which could make investments in other regions, including emerging markets, more appealing.
Jingjing Huang: What does this elevated volatility mean for investors?
Stephen Chang: In such uncertain times, bonds can serve as a stabilising force in portfolios. Fixed income investments are appealing now due to their low correlation with equities and attractive yields compared to the past decade.
As global growth faces potential headwinds from these policy shocks, bonds can help mitigate risks and provide a buffer against volatility. It's crucial to focus on high-quality bonds that can offer both stability and potential returns in this challenging environment.
Jingjing Huang: We’ve also seen China has announced retaliatory tariffs on all U.S. imports. And the U.S. is also escalating by hiking the China tariffs further. So Stephen, given all these trade tensions, what is the outlook for China right now?
Stephen Chang: China has taken a proactive approach by implementing measures to stimulate domestic consumption and strengthen its internal economy, aiming to offset the impact of external trade pressures. Last month, the government unveiled a "special action plan" that includes increasing residents' income, introducing childcare subsidies, and enhancing workers' rights.
Jingjing Huang: Given these measures, are we observing any early signs of recovery or positive developments in China's economy?
Stephen Chang: We're seeing a recovery in consumer sectors like record movie ticket sales and higher online game spending, but these are relatively small GDP contributors, and consumer caution remains evident.
In the industrial sector, there's an encouraging uptick in electric car sales, machinery usage, container ship activity, and copper prices, but these might be short-lived gains ahead of tariffs.
That said, China's focus on enhancing domestic consumption and investing in technology and AI is positioning it to adapt to global trade challenges, which could support long-term growth. Overall, while there are some positive signs, enormous external challenges remain.
Jingjing Huang: How about the property sector? Are we seeing any signs of stabilisation there?
Stephen Chang: We’ve seen a significant surge in secondary market volumes – up 49% for example in Tier 1 cities, and double digits in most other cities. However, this might be a temporary increase, driven by recent stimulus and a cautious shift from the primary market due to project completion concerns. Affordability has improved meaningfully with lower prices and mortgage rates, but weak income expectations still dampen demand.
Jingjing Huang: Thank you. Let's broaden our focus to Emerging Markets. What is our outlook there?
Stephen Chang: Emerging Market fundamentals continue to show resilience, with stable growth and better debt management among previously vulnerable countries. However, the looming threat of U.S. tariffs and shifting global supply chains could create both winners and losers, offering opportunities for active managers in the coming year.
Jingjing Huang: How are central banks in EMs responding to these dynamics?
Stephen Chang: Most EM central banks have slowed their pace of policy easing. While many are expected to cut rates in 2025, Brazil is an exception, aggressively hiking rates due to higher inflation and a wide fiscal deficit. Conversely, frontier markets like Ghana and Sri Lanka have outperformed, thanks to ongoing programs with the International Monetary Fund and improved debt-to-GDP trajectories.
However, navigating U.S. trade policy changes remains a key challenge, with potential for more unpredictable currency movements. As we discussed in our latest Cyclical Outlook titled “Seeking Stability,” this environment underscores the importance of diversification and seeking stable returns. We're focused on maintaining high-quality portfolios with sufficient cash to seize opportunities in this volatile environment.
Jingjing Huang: Thanks Stephen for sharing your insights. And thank you for watching.
For a deeper analysis of our economic and investment views, please read our latest Cyclical Outlook on pimco.com.