BENGALURU (Jan 2): Most Asian stock markets started the year on the back foot on Thursday, as investors braced for US President-elect Donald Trump's return to the White House and the prospect of US interest rates staying higher for longer.

MSCI's index of international emerging markets equities fell as much as 0.9% to its lowest level in nearly four months. Taipei shares, which soared 28% in 2024 in their biggest annual gain in 15 years, lost 0.9%.

Stocks in Bangkok fell 1.2%, while Kuala Lumpur equities were down 0.7%.

China stocks closed 2.7% lower, recording their worst New Year trading performance since 2016.

Markets are focused on the new US administration under Trump, who takes office on Jan 20, and its policies around tax cuts, tariff hikes and tighter immigration, which will likely boost bond yields and the dollar.

Moreover, the possibility of US rates staying higher for longer also raises the risk of stark rate differentials between the US and emerging economies spurring capital outflows.

"A strengthening USD in a hawkish interest rate environment poses potential headwinds for Asean EM equities," DBS analysts said.

The analysts said equity trade flows in 2025 would likely be volatile, too, depending on the scale of a potential tariff war, especially between the US and China, the interest rate outlook and the magnitude of China's stimulus plan.

DBS analysts see a global tariff war having the most damaging impact on Thailand, potentially cutting its GDP growth by 0.3-0.8 of a percentage point. Singapore's stock index would be the least volatile in a high-for-longer interest rate environment given its significant exposure to bank stocks, they said.

Singapore shares rose 0.2%, while the Singapore dollar gained 0.3%, after an advance estimate showed the city-state's economy posted its fastest annual growth in 2024 since exiting the pandemic.

The Thai baht and the Philippine peso added 0.3% and 0.4%, respectively.

The South Korean won, which lost 14.3% last year, rose 0.3% after the country released policy plans to spur foreign inflows.

Bucking the trend, the Indonesian rupiah lost up to 1% to hit its lowest level in two weeks.

An official told Reuters that Indonesia's central bank intervened in the foreign exchange market to maintain a balance in supply and demand for the rupiah.

Jeff Ng, head of Asia Macro Strategy at Sumitomo Mitsui Banking Corp, suggested that the rupiah might be catching up to year-end movements in other currencies.

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