
Last Friday (January 10), the latest US non-farm employment data significantly exceeded market expectations, pushing the dollar index to the 110 mark, and triggering a major pullback in US stocks, affecting global market sentiment. Analysts believe Asian stock markets may face external pressure in the first quarter, leading to increased volatility.
Strong Non-Farm Data Drives US Dollar and Treasury Yields Higher
In December 2024, US non-farm employment rose by 256,000, far above expectations, while the unemployment rate fell to 4.1%. The robust job market performance has significantly reduced market expectations of a Fed rate cut in 2025. Goldman Sachs anticipates the Fed may lower rates just once throughout the year, with some analysts even predicting the Fed might maintain current rates. This data pushed the dollar index up to 109.7, nearing the psychological threshold of 110, while the 10-year US Treasury yield rose to 4.762%, a recent high.
The strengthening dollar has subdued the performance of non-dollar currencies. Major currencies such as the British pound, euro, yen, and Canadian dollar generally fell, with the offshore RMB closing at 7.3576 against the dollar. Short-term expectations of a strong dollar appear difficult to reverse, putting greater pressure on emerging market currencies.
High Valuations in US Stocks Sparks Pullback Concerns
The strong dollar and rising interest rates led to a significant decline in US stocks last Friday. The S&P 500 index fell 1.54% to 5827 points, breaking the technical support level of 5880 points. Current US stock market price-to-earnings ratios are at historical highs, with forward price-to-earnings ratios nearing 21 times, raising investor concerns about overvaluation.
Despite this, Wall Street remains optimistic about US stocks. Goldman Sachs expects the S&P 500 to reach 6600 points within the year, with some aggressive forecasts targeting even 7000 points. However, Goldman Sachs' research also points out that high valuations often come with a greater risk of retracement, and the future trajectory of US stocks will increasingly depend on the actual performance of corporate earnings.
Increased Risk of Volatility in Asian Stock Markets
Under the dual pressure of a US stock pullback and a strengthening dollar, volatility in Asian markets has intensified. Last week, the MSCI Asia Pacific (excluding Japan) Index fell by 1.4%, with China's A-shares, Hong Kong, and Indian stock markets performing weakly, with drops of 3% to 4%. In contrast, the South Korean stock market rebounded 3%, while the stock markets in Taiwan, Australia, and Singapore remained stable.
Institutional analysis suggests that the volatility in Asian markets during the first quarter may be exacerbated by the following factors: first, uncertainty in Fed policy and the impact of a strong dollar on capital flows; second, potential trade policy changes under the incoming Trump administration; and third, the mismatch between high valuations and profitability in some Asian markets. In particular, Hong Kong stocks are more vulnerable to external shocks, with significant fluctuations in the stock prices of leading companies like Tencent Holdings recently observed.
Policy Stimulus Could Stabilize Asian Stock Markets
Despite short-term increased volatility, institutions remain optimistic about the medium- to long-term prospects of Asian stock markets. The potential for domestic economic recovery and policy support have become focal points for the market. The current price-to-earnings ratio of A-shares is around 12 times, lower than that of major global markets, while earnings growth expectations reach 13.6%, second only to US stocks. Institutions expect the Chinese government to further introduce policies to stimulate consumption in 2025 to boost domestic demand and strengthen investor confidence.
The consumer sector is seen as a key driver of future growth. Policy-driven "trade-in" initiatives have already stimulated growth in home appliances, automobiles, and other sectors in 2024. If similar policies continue to be implemented, they will underpin economic recovery and potentially boost capital market performance.
In summary, market volatility induced by US non-farm data may persist in the short term, while geopolitical and policy changes will be key variables influencing the direction of global markets. Asian stock markets must seek balance between external pressures and internal recovery, requiring investors to closely monitor macroeconomic policies and market dynamics.

