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Market insights by Krisada Yoonaisil, Financial Markets Strategist at Exness.
The possibility of a trade war, once a looming threat, is now a stark reality. US tariffs have been enacted, sending ripples across global economies, with Asian markets finding themselves at the epicentre of the turbulence. For traders and investors, managing this volatile new reality requires three things: a keen understanding of the immediate impacts, a strategic approach to mitigating risks, and finally, uncovering potential, albeit unconventional, opportunities.
How things stand: A quick breakdown
Asian stock markets have reacted sharply to the imposition and escalation of US tariffs. Recent announcements, such as the doubling of tariffs on steel and aluminium, have seen markets like Hong Kong, Tokyo, Sydney, and Singapore register significant declines. The Shanghai Composite, Hong Kong’s Hang Seng, and Japan’s Nikkei 225 have all experienced precipitous drops, with the Hang Seng falling over 13% and the Nikkei down 7.8% on particularly volatile days, described by some analysts as a “bloodbath.”
These are not isolated incidents but reflect a broader trend of heightened volatility and investor anxiety. In May 2025, Asian factory activity shrank as US tariffs and softer demand in China took a heavy toll on companies, painting a darkening outlook for a region once known for rapid growth.
The core of the issue lies in Asia’s reliance on exports, particularly to the US. Manufacturing hubs in countries like Japan, South Korea, Vietnam, Cambodia, Thailand, and China face significant headwinds. Tariffs ranging from 10% to as high as 54% (for China) on a wide array of goods, including textiles and automobiles, directly impact these economies.
Even a temporary pause in the US-China trade war, which saw the US agree to cut tariffs on Chinese imports from 145% to 30% and China reciprocating cuts, brought immediate relief and a rally in Asian markets, underscoring their sensitivity to trade developments. However, the underlying tensions and the “permanent” nature of this new era of elevated tariffs suggest that such relief may be fleeting. Chinese economic policy uncertainty, in particular, has been identified as a primary driver of Asian stock market volatility.
Navigating the storm: Strategies for traders
In such an uncertain environment, a reactive approach is insufficient. Traders need to consider a diversified strategy, looking beyond traditional assets and understanding the unique characteristics of alternatives.
Diversification through indices and value strategies
One fundamental approach to managing heightened risk and volatility is diversification, and stock market indices offer a pathway to achieve this. Indices are collections of stocks that can average out the idiosyncratic risks of individual companies.
Key Asian Indices to consider:
● NIFTY 50 (India): Represents 50 of the largest companies across 14 sectors on India’s National Stock Exchange, offering a broad view of the Indian market.
● Nikkei 225 (Japan): A price-weighted index of 225 companies on the Tokyo Stock Exchange, heavily influenced by Japan’s export-oriented economy. Given Japan’s manufacturing contraction due to US auto tariffs, this index requires careful monitoring.
● Hang Seng Index (Hong Kong): Tracks 50 of the largest companies on the Hong Kong Stock Exchange. It is often seen as a barometer for sentiment towards China and the broader Asian region. It has shown significant sensitivity to trade news.
● Straits Times Index (Singapore): Comprises 30 top companies, with a focus on finance, real estate, and telecommunications.
● KOSPI (South Korea): Like Japan, South Korea’s export-reliant economy, particularly in automobiles and technology, makes its main index vulnerable to tariffs.
● Shanghai Composite (China): Tracks all A and B shares on the Shanghai Stock Exchange and is a key indicator for mainland China’s market, which has been directly impacted by US tariffs and retaliatory measures.
While these key Asian indices provide avenues for traditional diversification, the macroeconomic uncertainties, like trade wars that necessitate careful risk management, can also impact these broad market indicators.
Bitcoin: A decentralized hedge?
During times of macroeconomic uncertainty, investors often seek unconventional assets. Bitcoin, with its decentralized nature, is often touted as being less susceptible to the direct policy changes of individual governments, unless those changes specifically target cryptocurrencies. However, the relationship isn’t straightforward.
Expect continued turbulence
The ongoing trade war signals a period of sustained uncertainty for Asian stock markets. While temporary truces may offer a brief respite, the fundamental disagreements and protectionist stances suggest that volatility will persist. Asian economies, with their strong export orientation, remain particularly vulnerable to shifts in US trade policy and the broader global economic slowdown these tariffs might induce.
Traders must remain agile, informed, and strategically diversified. While traditional safe havens and defensive stock picking have their place, exploring alternatives like bitcoin and commodities such as oil, with a clear understanding of their unique risk-reward profiles in a trade war context, may offer avenues to navigate the choppy waters ahead.
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