Trump’s Tariff Bomb Sparks Investor Exodus from Asian Markets: “Tech Stocks Could Fall by 20%

Market turbulence intensifies as foreign investors retreat amid trade tensions and a stronger dollar / AFP

The recent high-tariff policies announced by U.S. President Donald Trump are pushing global fund investors to offload stocks in major Asian markets. With the value of the U.S. dollar surging, Asian stock markets are facing severe challenges. Investment banking giant Morgan Stanley has weighed in, predicting that Asian tech stocks could experience a sharp 20% decline in the short term, prompting recommendations for profit-taking amid the heightened risks.

According to Bloomberg, global funds offloaded approximately $12.3 billion worth of stocks in emerging Asian markets, excluding China, during January 2025 alone. Over the past seven months, international investors had already withdrawn a staggering $54 billion from the region. Bloomberg highlighted that this extended sell-off period is the longest since 2009 based on their data.

The exit of foreign investors has contributed to a bearish atmosphere in Asian equities. The MSCI Asia Pacific Index has dropped by 4.4% since the U.S. presidential election in November 2024. In stark contrast, the MSCI Europe Index and the U.S. benchmark S&P 500 Index saw gains of 4.4% and 4.5%, respectively, over the same period.

Bloomberg attributes this trend to the strengthening U.S. dollar. Following Trump’s announcements of tariffs on Mexico and Canada, major Asian currencies, including the Australian dollar and the Indian rupee, experienced steep declines. Kimmy Tong, a global strategist at Everbright Securities, explained, “In times of a strong dollar, investors typically retreat from riskier assets like Asian equities and shift towards safer ones, such as U.S. Treasury bonds.”

Adding to the woes is Morgan Stanley’s warning about the impact of escalating trade tensions on Asian tech stocks. The bank's analysts pointed out that these companies face significant trade risks while also being overvalued relative to their earnings. They further noted limited room for earnings growth and advised investors to take profits.

Morgan Stanley’s report highlighted that higher tariffs on semiconductor components and rising global trade tensions could trigger a 20% drop in Asian tech stocks in the short term. The bank also emphasized that current earnings estimates for the sector are overly optimistic.

“Reducing exposure to this sector and hedging risks is advisable,” the report stated. “This segment is likely to drag down investment returns moving forward.”

The combination of Trump's aggressive trade measures, a strong dollar, and investor caution underscores the fragility of Asian markets. With uncertainty looming, investors are left to navigate a turbulent landscape marked by rapid market shifts and evolving risks in the global financial arena.