Global equity markets, boosted by ample liquidity, may see consolidation in August–September after crowded positioning post-Q2 earnings, setting the stage for a potential year-end rally. EM ex-Asia remains volatile with higher tariffs, geopolitical risks, and oil oversupply concerns.

Asia ex-Japan faces selective pullbacks — Korea on tax concerns, Taiwan after strong semiconductor results, and ASEAN amid cheap valuations but weak growth. Japan gains stability post-election, with BOJ likely to hike by year-end.

In China and Hong Kong, strong Southbound flows support equities despite active funds remaining underweight, while A-shares are catching up, led by tech and financials.

Asian credit markets stay strong—investment-grade spreads are tight but yields attractive, and high-yield demand remains robust despite limited capital gains. EM debt faces commodity price headwinds.

Gold consolidates but retains safe-haven demand from central banks. Multi-asset strategies remain appealing, offering diversification and income amid elevated cross-asset correlations.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 31 July 2025

China / Hong Kong Equities

• After a significant rally in July in global equity markets driven by ample liquidity, some consolidation is warranted to occur in August and September, as the markets were overcrowded, especially after Q2 earnings, to prepare the markets to continue the rally to the year-
• With the new tariff rates confirmed, although an uncertainty overhang is removed, the US economy has started to show signs of weakness.  The US effective tariff is now 15% which will add 25bps to inflation from the former expectation. The weak non-farm payroll number (together with the revisions) shows the weakest pace of hiring since 2020, even when the labor force participation rate is down.  Although the market is shifting to the expectation of a more rapid rate cut, higher inflation may still prevent the Fed from cutting aggressively.
• Given the ample global liquidity, the Hong Kong China market also benefited, but mainly from passive fund inflows. Active long-only funds are still underweight China.  However, Southbound flows to Hong Kong hit USD 17bn in July and USD 110bn YTD, surpassing 2024’s full-year level.
• Macroeconomic data in China is mixed.  China is likely to continue the wait-and-see approach and release stimulus gradually when needed.  While valuation is back slightly above average, we expect investors to continue rotating among the sectors that have higher growth visibility.
• The Hong Kong equity market continues to be supported by the strong momentum.  HIBOR may continue its uptrend due to HKMA buying HKD to protect the peg, but it will remain much lower than before, given the ample liquidity.

China A-Shares

• A-shares have been lagging Hong Kong-listed shares, but it has started to catch up, led by the tech sector and financials.  AH premium remains at the low end but has begun to reverse from the extremely stretched level.
• Valuation has returned slightly above average.  Investors will continue to focus on the sectors with higher growth visibility.  Anti-involution will remain the focus.

Asia ex-Japan Equities

• As the US market may experience some consolidation after being overcrowded, the markets highly correlated to the US may also undergo some healthy consolidation.
• South Korea, which has experienced a significant rally since the election, has started to have some reversals triggered by the tax increase proposal from Lee’s administration.  There was profit taking in popular themes such as Holdco discount-narrowing companies.  While there is opposition to this proposal and the tax increase may not be implemented as proposed, the near-term momentum has turned more cautious, but it is a healthy correction as fundamentals remain strong.
• Taiwan cheered by the much better outcome from the semiconductor tariff, as companies with investments in the US should be exempted.  Although there is still uncertainty on the definition of exemption and whether there will be more tariffs on electronic products to follow, a big uncertainty has been Also, Q2 results were very strong, but valuation has also been climbing to the high end of the historical range.  After the earnings season, there could be some consolidation before the market rally continues.
• ASEAN markets remain very cheap, and some catch-up rally has already started.  However, if the Fed continues to be on hold, these countries may also pause rate cuts, which will hinder the already weak economic recovery.

Emerging Market ex-Asia Equities

• Emerging markets outside Asia are hurt by the much higher tariff rates, such as Brazil’s 50% tariff.  Also, there is still uncertainty on the Russia-Ukraine situation and further sanctions on Russia, although it is now saying the Putin-Trump summit is going to take place within days.
• In addition, with OPEC+ increasing production in September by 548k barrels/day to completely reverse the production cut by one year earlier, the oil price will be under pressure as oil will become oversupplied by Q4.  The market will remain volatile.

Japanese Equities

• Although LDP lost the majority in the Upper House election and there was news about Ishiba stepping down in August, the latest update is that at least for the near term, Ishiba will remain in place as prime minster as he needs to continue on the work of negotiation with the US on the trade deal and the better tariff rate on Japan has given some support to Ishiba.
• With the political noise now behind, the JGB market has calmed down and is helped by the stronger JGB auction demand.  Although the BOJ has toned down inflation and the need to hike the rate, if the political situation has calmed and given the high inflation, we expect the BOJ will still hike the rate at the end of the year.

Asia Investment Grade Bonds

• With the Fed being patient, although there is higher hope of a rate cut from the market given the weak payroll numbers, we believe the Treasury yield curve will remain steep as foreign investors show weak demand for the Treasury auctions.  
• Asia investment-grade bond spreads continue to narrow to historical tight levels.  Since absolute yields are still attractive and Asia investment-grade bonds still serve as a diversification to equity risk, demand remains strong.

Asia High Yield Bonds

• Spreads continue to narrow further to below average.  The Asia industrial high-yield bonds were particularly strong given the improving fundamentals. 
• Although capital gain opportunity has diminished due to the very narrow spreads, demand for Asian high yield bonds remains strong overall due to yield chasing.  Lower USD has helped relieve some funding pressure for the Southeast Asian companies. 

Emerging Market Debt

• Spreads remain tight, but a lower USD is supportive to the region.  However, lower oil prices due to larger OPEC+ increases in production and the new copper tariff from the US will impact commodity-exporter emerging markets.

Gold

• The gold price remains in a consolidation phase.  While some USD was strengthening in the last week of July and the first few days of August, there was no significant sell-off in Gold, proving the strong demand and the continuation of diversification away from fiat currencies. 
• Central banks also continue to increase their gold holdings to diversify their FX reserves.  Gold also remains a good hedge against any spike in geopolitical risk.

Multi-Asset

• A multi-asset strategy offers lower volatility compared to traditional single-asset or balanced portfolios. However, the correlation between risk assets, such as equities, credits, and commodities, has recently increased dramatically. In an uncertain environment, income becomes an essential source of return for investors.

Source: Bloomberg, Data as of 31 July 2025.

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^{The views expressed are the views of Value Partners Hong Kong Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All materials have been obtained from sources believed to be reliable as of the date of presentation, but their accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.}

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