Trade tensions cloud Asia’s economic recovery outlook: report

The findings were based on discussions with investors from Singapore and Hong Kong.

Asia’s economic recovery faces fresh challenges as rising trade tensions and policy uncertainty threaten corporate investment and economic growth, according to a new report by Morgan Stanley.

The investment bank warns that tariffs, deflation risks in China, and cautious monetary policy in Japan could weigh on business confidence and slow the region’s recovery.

The findings, based on discussions with investors in the US, Singapore, and Hong Kong, highlight growing concerns over capital expenditure (CAPEX) constraints and a global trade slowdown.

Whilst some investors remain optimistic about China and India’s growth prospects, many fear that the uncertainty surrounding trade policies could have a larger economic impact than the 2018-2019 trade war.

Trade tensions remain the top concern for investors, with new US tariffs on China and key industries such as steel, aluminum, semiconductors, and automobiles expected to further strain economic conditions.

Morgan Stanley analysts caution that uncertainty alone is enough to slow down capital investments, as businesses hesitate to commit resources in an unpredictable policy environment. "Unless tariffs are averted swiftly, the uncertainty itself will hurt the business cycle," the report stated.

Investors in Singapore and Hong Kong remain moderately bullish compared to their US counterparts, particularly regarding China and India’s long-term growth potential.

However, as major global trade and financial hubs, both economies remain highly exposed to shifts in trade policy and economic volatility.

With further tariff actions on the horizon, Singapore and Hong Kong could see increased market fluctuations, affecting business confidence and capital flows.

Technology, infrastructure, and financial services remain key sectors of interest for investors looking for selective opportunities despite broader uncertainty.