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Under the Banyan Tree – 2025: Expectation vs reality
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In our final episode of the year, Herald and Fred reflect on what surprised them most across Asian markets and economics in 2025.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast: https://www.research.hsbc.com/R/101/H7jvjLS
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Transcript
Introduction to HSBC Global Viewpoint
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto to today's show.
00:00:33
Speaker
Hello and
2025 Asian Markets Overview
00:00:34
Speaker
welcome to Under the Banyan Tree, where we put Asian markets and economics in context. I'm Fred Newman. And I'm Harold van Linde. And this is actually our final podcast for 2025. And we want to talk about what surprised us the most on the micro and the macro fronts over the last 12 months.
00:00:50
Speaker
That's right, we do a lot of forward thinking in this job and sometimes you get hit with a curveball. We're going to talk trade, AI, consumption, equity markets and more. For the last time in 2025, it's time for you to join us under the bengal tree.
Unexpected Trade Developments in Asia
00:01:22
Speaker
So, Fred, here we are at the end of the year, December 2025. It's a bit of a time to look back and on the year. Normally, then we discuss what happened in the year, politics and economics and markets. But I think we've done this in in other podcasts already. So i'm just going to ask you, Fred, if you look back on this year, was there something that really surprised you?
00:01:41
Speaker
Well, you my my first instinct, of course, as ah as an economist, is to say, no, no, we've foreseen everything. But if we're honest, there were, of course, surprises along the way. And I think most economists would probably argue now that they underestimated the strength of of trade um in the face of all these tariffs that were imposed by the US on its own imports. yeah Because if you look at data, really, we have now data that stretches well into November.
00:02:10
Speaker
ah We're running at possibly record trade volumes for Asia, if not the world overall. That is November, right? So, and and these tariffs were imposed in, well, April. Well, they really came a little bit later. But we knew that they were coming. So, people could have front-loaded. But this this sort of front-loading story is much stronger than we anticipated. Yeah. So, so i you know, it's much stronger and it lasts longer. So, we haven't seen the payback yet from front-loading. And it appears that there will be some payback, but it's not going to be as strong. So that surprises I think most economists including us that that we have such a strong momentum in in trade despite these tariffs being imposed.
00:02:50
Speaker
How do you explain this? Well, there is obviously – it might mean that the world is shifting its demand more towards goods away from services for example. That's something we saw also during the pandemic but um it hasn't really tailed off as quickly as people thought. It might mean that there are certain sectors are growing like investment, for example, and more trade intensive that carry trade for longer. But that's probably the number one surprise. And it probably also is the cause why most GDP growth forecasts had to be revised upwards for this year yeah ah across –
00:03:29
Speaker
the economists on the street. And and so that that was probably, I think, the number one surprise. But
Vietnam's Economic Resilience
00:03:34
Speaker
point but then, Harold, for your world, I mean, how how does that, you know, better trades at any markets or surprise Well, I'm a man that's constantly surprised by many things. But um keeping it into this sort of framework of trade, what has surprised me, the country that is most exposed to the trade story And ah the tariffs and also the country that was one of the first to fly to Washington and say, can we try to make a deal with Vietnam? Vietnam of course vietnam is so exposed to this, ah you know better than I, but exports would make up a large percent of the overall economy.
00:04:07
Speaker
But it seems that it's just chocked along quite OK. It's done pretty well. this much More than OK, I would say. and We have – I remember early in the year, ah the Vietnamese government said we want to achieve at least 8 percent growth this year. And and many, i think, analysts were scratching their heads a little bit and said, well, you're so trade-dependent. If trade going to turn down, how are you going to achieve that stellar growth? And they have delivered very strong growth on the export side but also domestically. But is that reflected in the market, by the way? Well, this is maybe the have delivered is is the link to the market because the Vietnamese stock market, but the the big story in the Vietnamese stock market is not so much the export sector. Yes, that's important what they do there and the structural story. But it's really also that they are now a frontier market. So it's a bit outside of the investable universe for most investors. And they're gradually coming into the investable universe. So there have been indices who said we're going to include it now as an emerging market. The leading index, not yet, but the expectation is it's going to happen soon. So Vietnam is really upping its game in that sense. It's becoming more important.
00:05:11
Speaker
But just to go back maybe one thing that has, I guess, surprised maybe both of us. But maybe you can explain this. These trade numbers have held up so well. AI must have played. Wasn't that a story? That
AI Investments Boost Asian Markets
00:05:22
Speaker
certainly is is is still a surprise this year because we all knew AI was a big story um coming into this year, right? We already saw last year the market certainly was very – enthusiastic about AI. um but But I think what what surprised um most is how strong the um the the investment spending, particularly U.S., was around data centers, AI infrastructure. That explains the strong trade numbers to certain extent, right? Because they need to buy that equipment here in Asia. Exactly. It's the entire ecosystem around AI that help lift Asian trade volumes, but also must for you for markets in Asia, Korea, Taiwan, they must have performed very, very well. Korea is up 60% year-to-date. That is just enormous. Taiwan has performed very strong, but some of these markets have have done phenomenally well.
00:06:11
Speaker
They started here very slow, but it was really over the summer and late summer when they really gained momentum. And AI came into into focus. And that was really the investment story for 2025. People have poured into these chip makers and these sort of companies. Absolutely. So you I'm an economist and i'm I'm by nature a skeptic. You have to be yes pessimistic and and just a sad soul if you study economics. um and And so i I would think that you know the AI investment boom at some point might run its course. But a friend just reminded me that ChatGPT is only about 1,000 days old. we're We're not that far into this AI story. you know um So it is actually still rather fresh. Yeah. And ChatGPT was one of the first ones. And now you have all sorts of other AI platforms perplexity. Within three years. Yeah.
00:07:04
Speaker
So we we are living through maybe a sort of yeah a new technological revolution. And we're in the very early days of it. Yeah, there comes the optimism, the equity strategist through Absolutely. Plenty of growth ahead. To bring you back to earth in and terms of optimism, China.
China's Housing vs. Stock Market Performance
00:07:20
Speaker
china yeah You've got to – I mean is an upside surprise or downside surprise? Certainly on the economy I would say. Yeah, we are probably different here. For you it was a downside surprise. For me it was a downside surprise, yeah. And particularly the housing market. So if you think back early in the year, and there were actually signs at the housing market which is so important for the overall story of domestic demand, internal consumption, investment, finances, local government, revenues, right? Everything really revolves around the property market. there were sort of signs that well maybe sales are picking up, prices were stabilizing and people were sort talking. Give it time and it green shoots and it would recover. Green shoots coming back and then suddenly by July the entire market starts to roll over again. Sales start to weaken, house price declines accelerated and so here we are at the end of the year and I think one of surprises course of this year that we still haven't found truly the bottom in the market. Now we might be close to it but Certainly at the beginning of the year, I think there was a bit more optimism. Yeah, there was a feeling we've passed the nadir, we've passed the lowest point, but now the progress upwards is depending on how quickly that goes. But clearly that might not be the case yet. But the positive surprise for me has been how strong the Chinese stock markets, the onshore, but also the ones ah listed in Hong Kong, how strong they've been. And this is a confident story. It's not a growth story. There has not been a lot of earnings growth in China this year. It's people saying, I've got a lot of cash. I've got the confidence to invest in stocks again. Things might be improving. So this is the time to buy. And now maybe one of the surprises for 2026 will be how that story is going to unfold. If if China property is not recovering, does that mean that confidence to invest is going to shrink as well? So that's something that we'll just need to work out over the coming year.
India's Inflation and Interest Rates
00:09:11
Speaker
ah Fred, we've spoken about trade, the big themes, Vietnam, China, AI, but ah let's focus a little bit on the other part of the region as well, India. Any surprise that has come out of that? Yeah, I mean, of course, India is always good for surprises. But I think if I were to, from a macroeconomic perspective, focus on one is how quickly inflation has declined because we're now looking at the end of the year. at inflation rates below 1%, so between 0% and 1%. And some markets in the 80s, 90s, India, Indonesia, Asia, they're always known for very high inflation economies, right? and now Yeah, now we're looking at lower inflation in India than in the United States by a considerable margin. um Now, if you look closely, it's partly because food prices have declined, stabilized. They were very high 24. This year, we've normalized harvests, and so that brought... Monsoons are very important.
00:10:02
Speaker
Monsoons are important. We had less of a heat wave, for example, coming through than last year. And so that helped bring food prices down and that pulls the index down. But there's another sort of interesting nuance here and that is if you look at core inflation, which takes out essentially food and energy just looks at underlying inflation. That has actually ticked up a little bit to about 4%, just over 4%. Now, within that, it is gold that is driving that because within India, gold is part of the CPI basket because Indians like to buy a lot of jewelry and so forth. buying jewelry has become more expensive. That's right. And that's what they do for dowries and these sort of things. And with the global gold price going through the roof, of course, that has pushed up this core measure. So if you strip out gold as well, then actually even core inflation has also decelerated. And so that is certainly a surprise for economists following India, but it also means that for the average consumer, the cost of living is becoming more affordable and the central bank can lower interest rates. As long as you don't buy oil, gold and food. That's right. Yes, you got abstain from your gold purchases and you see your purchasing power go up. But it ultimately means central bank can cut interest rates and that's good for economic growth. But interest rates, certainly bit of a surprise this year, Harold. Yeah, I mean think – Another one that has surprised me in terms of market performance is, for example, Singapore has done very well.
Singapore's Banking Sector Thrives
00:11:29
Speaker
Now, Singapore has a lot of banks. And the story, there's interest rates. And the story for them is to large extent Singapore, but also US interest rates. And this comes back to what you mentioned earlier on. Inflation in the US so much higher than, say, India, but also in some the other markets, Indonesia, you name it. So these interest rates in the Western world are higher. And here in Asia, we would like to lower them. And then you have some banks that trade or invest a lot in the US, Singaporean banks. So they've performed actually this year pretty well, despite the fact that growth in the region in which you operate is lackluster and problematic. But because of these high interest rates, they've done very well.
00:12:09
Speaker
I feel like you just put that in because you want to remind me again that equity performance is nothing to do really with economic performance over time, does it? No, but this is absolutely right. it's ah We need to understand what economists say, but we need to figure out what we need to understand from you guys because our universe is actually so so so different. So I do need to understand what happens with interest rates and I need ah to talk to you about You listen to the economists occasionally. Yes, once in a while.
00:12:34
Speaker
But look, outside of markets, what surprised you this year? Any facts that you learned about that surprised you? Yeah. So
Jakarta's Urban Expansion
00:12:41
Speaker
one thing that has surprised me is that the city where I lived for quite a long time, Jakarta, is now the largest city the planet. And wrote a about We have to mention that as well. Yes. And a book about the history of Jakarta is now the largest city on the planet. And it's not a surprise that it's on the number one. I mean, to be honest, it is. There's about 40 million people living there. But also, if I'm in Jakarta, I'm subtly surprised. Quite recently, I was there. My brother-in-law drove me to the airport, and I drove through an area called Tangerang that used to be in the 90s kind of on the outskirts.
00:13:11
Speaker
And now I drive through this highway with large towers standing. There's a whole Tangerang business district that you pass. And even for me, i like come there on a regular basis. I think I know that city reasonable well. It was like, wow, they have a whole big business district here. So... Yeah, that city is ballooning. Now, you said set at Jakarta this year turned into the largest city globally. what What was the previous biggest city? Was it Tokyo? Yeah, it was Tokyo. That's right, Tokyo. it yeah Because you've got a couple of these cities that normally are in the top five, but it was Tokyo. That's right. um
00:13:43
Speaker
But being in Southeast Asia, what has surprised you? What
Festive Surprise in Manila
00:13:47
Speaker
surprised me was um encountering snow in Manila. Snow in Manila. Yes. Yours truly went to a Mariah Carey concert in early October in Manila. And of course, Mariah Carey being known for that song, All I Want for Christmas is You. And that was the last song of the concert in Manila in a packed stadium.
00:14:08
Speaker
And lo and behold, it started to snow. Snow when she started to sing. and But the best thing, of course, was this being in the Philippines, that the entire audience had an even more perfect pitch than the lady herself singing that song. I am not surprised by that. The Filipinos, they are… That is not surprising, but the snow is surprising. But the snow a snow is surprising. Snow in Manila.
Conclusion and Holiday Wishes
00:14:32
Speaker
And that's a wrap for this episode and the year. A huge thank you to all our listeners for being with us for 2025. And you can be sure that we'll be back in 26, putting Asian markets and economics in context right here under the banyan tree.
00:14:47
Speaker
A very Merry Christmas to all who celebrate. And we're looking forward to landing back on your podcast platform of choice in January. Until then, this is Harold, Fred and our producer Graham saying thanks for joining us and take care till the next one.
00:15:28
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.