Global markets remain in a period of elevated volatility as investors navigate persistent inflation, high US Treasury yields and uncertainty over the Fed’s policy path. Equity markets have become increasingly selective, with investors placing greater emphasis on earnings visibility and sustainable margins.

In China and Hong Kong, weak domestic demand and concentrated positioning remain headwinds, while technology-related tensions add uncertainty. Across Asia, recent deleveraging has reduced some excessive positioning, although concerns over technology valuations, elevated capex and peak margins could keep volatility high. India and Japan offer relatively more supportive dynamics, while Latin American valuations appear stretched following recent outperformance.

Fixed income remains supported by strong demand, particularly in Asia investment grade and emerging market debt, although tight spreads and elevated Treasury yields warrant caution on duration. Asia high yield remains resilient, but potential spillovers from stress in US private credit and high yield are key risks.

Gold has regained momentum, supported by relatively light positioning, expectations of a potentially softer US dollar and continued central bank demand. Overall, higher cross-asset correlations reinforce the case for diversification, while income remains an important source of portfolio returns amid an uncertain market environment.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 31 July 2026

China / Hong Kong Equities

• US Treasury yields have remained elevated following the July FOMC meeting, where the Committee voted 9-3 to keep interest rates unchanged. Notably, all three dissenting members voted for an immediate rate hike, representing an unusual degree of hawkish divergence within the FOMC.
• This has raised questions in the market over the Fed’s credibility. While we believe the likelihood of a September rate hike remains low, given the decline in oil prices from their July peak and signs of a softer labor market, uncertainty over the timing of future rate hikes and persistent inflation is likely to keep yields elevated, which could cap the upside for equity markets.
• Second-quarter earnings in the US have so far mostly exceeded expectations. However, the market appears to be rewarding earnings sustainability and visibility more than growth, marking a shift in investor behavior compared with the first-quarter earnings season. While markets will continue to closely monitor incoming economic data, greater attention will likely be paid to Kevin Warsh’s speech at the Jackson Hole Symposium for indications of the Fed’s future policy direction.
• Hong Kong financials have come under pressure following news that China may impose taxes on offshore insurance income, raising concerns over potentially tighter controls on offshore investments from mainland China. Meanwhile, macroeconomic data in both China and Hong Kong have deteriorated, suggesting that the broader macro backdrop, particularly domestic demand, remains weak.
• Following the rebound in July, driven by a rotation from technology into value stocks, market valuations have returned to around historical average levels. From here, a further market rebound would likely require more tangible improvements in corporate earnings fundamentals and the broader macroeconomic outlook.

China A-Shares

• The high concentration in the technology sector, coupled with elevated margin trading, triggered a significant unwind in China A-share AI-related stocks in July as momentum in the global AI sector reversed. The National Team stepped in to support the market and help stabilize the selloff.
• While some excessive positioning has since been unwound, margin balances remain elevated. As other sectors have yet to show any meaningful recovery, positioning has started to build up again in the technology sector, suggesting that volatility is likely to remain high given the continued concentration.
• Meanwhile, tensions between the US and China over technology-related export and import restrictions are building. Both sides appear to be seeking greater negotiating leverage ahead of Xi’s expected visit to the US in September.

Asia ex-Japan Equities

• Following the significant deleveraging across the technology sectors in Korea, Taiwan and Japan, markets staged a relief rebound on the final trading day of July. However, the rebound remains fragile.
• While second-quarter earnings have been strong so far, the market is increasingly rewarding companies with sustainable margin expansion rather than growth alone. Elevated capex also remains a concern, not only among CSPs but also across hardware companies, amid concerns over excessive capacity buildout.
• Market volatility in Korea remains high. Although the deleveraging process appears to be largely over, investors are becoming more concerned that margins in the memory sector may be approaching a peak. The significant market volatility has also weakened investor confidence, suggesting that sentiment may take time to recover.
• India has started to see some foreign investment flows return, as institutional investors increasingly prefer greater diversification across countries and sectors rather than maintaining concentrated exposure to technology following the July selloff. India’s macro backdrop is also improving, and a further retreat in oil prices should provide additional support to Indian equities.
• Meanwhile, the market increasingly expects the US dollar to have peaked following intervention to support the JPY. This has been interpreted as a signal that US Treasury Secretary Bessent does not want the US dollar to strengthen excessively, which could provide a more supportive backdrop for both Indian and ASEAN markets.

Emerging Market ex-Asia Equities

• Latin America outperformed Asia within emerging markets in July, supported by the rotation from growth to value. However, valuations now appear stretched following the rally, while elevated US Treasury yields are likely to cap further upside in the near term.

Japanese Equities

• The BOJ and US Treasury conducted a coordinated intervention to support the JPY, marking a historic development. This signals that the US does not want the dollar to strengthen excessively and seeks to avoid additional upward pressure on US Treasury yields.
• The intervention has shifted market expectations, as short JPY positions have become a highly one-sided trade, with carry-trade positioning once again reaching an all-time high.
• A more balanced outlook for USD/JPY should provide a healthier backdrop for the Japanese equity market. The market now expects the BOJ to deliver another rate hike in October, brought forward from the previous expectation of December. Meanwhile, second-quarter earnings have been strong so far, providing further support to the market.

Asia Investment Grade Bonds

• US Treasury yields have remained elevated following the July FOMC meeting, where the Committee voted 9-3 to keep interest rates unchanged. Notably, all three dissenting members voted for an immediate rate hike, representing an unusual degree of hawkish divergence within the FOMC and raising questions over the Fed’s credibility. Against this backdrop, investors continue to prefer the shorter end of the yield curve.
• On the other hand, demand for Asia investment grade (IG) bonds remains strong. With new issuance remaining limited, Asia IG spreads have tightened below those of US IG, as CSPs continue to increase bond supply in the US while issuance remains relatively tight in Asia.

Asia High Yield Bonds

• Asia high yield spreads remain well below historical average levels amid subdued new issuance. However, the risk of defaults and widening spread in the US high yield market, particularly amid emerging cracks in private credit and bank loans, remains a key risk factor. On the other hand, lower oil prices should provide some relief to ASEAN bond issuers.

Emerging Market Debt

• Spreads remain tight. Elevated US Treasury yields are likely to keep investors cautious on duration. However, emerging market bond spreads should remain relatively stable, supported by strong investor demand.

Gold

• After two months of consolidation, gold and other precious metals have started to break out technically to the upside. Retail deleveraging and the associated selloff appear to have largely run their course, while positioning among both institutional and retail investors is now at relatively low levels.
• Expectations that the US dollar may have peaked, concerns over the Fed’s credibility, and continued central bank buying should provide further support. Notably, the Bank of Korea resumed gold purchases in July after a 13-year halt.

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 2026.

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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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