Global risk sentiment remains fundamentally supported heading into 2026, although asset-class performance is likely to diverge as macro uncertainty persists. In equities, the U.S. slowdown appears manageable, with a dovish tilt at the Federal Reserve and the upcoming midterm elections providing potential policy tailwinds.

However, China Offshore and Hong Kong markets remain range-bound amid soft macro data, weak earnings revisions, and a lack of new catalysts. By contrast, China A-shares are seeing renewed foreign interest following the 15th Five-Year Plan, though valuations and macro softness continue to drive a selective, diverse market, which focuses on sectors with earnings visibility.

Across Asia ex-Japan, North Asian equities face stretched valuations and some profit-taking, while ASEAN shows early signs of stabilization. Japan’s equity outlook remains supported by a weak yen, albeit with valuations near the high end of historical levels.

In fixed income, spreads in Asia IG and HY remain compressed, making duration gains harder to capture and emphasizing the importance of careful security selection, especially in high yield. Emerging-market debt similarly faces rich valuations.

Gold continues to benefit from central-bank demand and the ongoing “debasement trade,” while multi-asset approaches remain valuable as correlations among risk assets rise and income becomes a more critical return driver.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 30 November 2025

China / Hong Kong Equities

• The US government shutdown has caused a delay in reporting economic data, causing uncertainty in accessing the Fed’s rate cut path.  This was the most important factor causing the market volatility in November.
• Now with the weak consumer sentiment and the leading candidate of the next Fed Chair, Kevin Hassett, being a dove, a December rate cut is almost fully priced in, giving a path of mild year-end rally for the US equities.
• Our base case is that the US economy is slowing down but could avoid recession next year.  With 2026 being a mid-term election year in the US, Trump will push more fiscal policies to support the economy.  A non-recessionary rate cut cycle is positive for risky assets.
• On the other hand, Hong Kong China equities remain in range bound in the near term without a new catalyst.  Macroeconomic data in China is still weak, with PMI below expectations and the property market still dragging down.
• Q3 results for the companies were slightly missing the consensus on average.  For the equity market to rally further, we need to see upward earnings revisions to support the valuation.

China A-Shares

• There were positive messages in the 15 Five-Year Plan coming out from the fourth plenary session, not in the matter of stimulus but in the policy direction in the medium to long term.
• With the US-China relationship improving, foreign interest in investing in China has increased, with mostly passive inflow to the market so far.
• On the other hand, as valuation is not cheap in general and the remaining weak macroeconomic environment, investors continue to expect a diverse recovery, focusing on sectors with higher earnings visibility and sustainable growth potential, such as AI/ tech sectors, while interest in the consumption sector remains very weak.
• Momentum from the retail investors has slowed down after an influx of inflows, shifting from savings and record investment account openings.  The market will continue to consolidate and be range-bound in the near term before taking off for another wave of rally.

Asia ex-Japan Equities

• Valuation in North Asia has gotten stretched, although there were also positive earnings revisions, while Southeast Asia remains cheap due to political and growth concerns.
• South Korea, with more progress on the Value-Up program and the stronger-than-expected upcycle in the memory sector, has continued to catch the spotlight within Asia.  However, there is also profit taking towards the year-end after a great year of performance.
• Taiwan continues to benefit from the increased AI investment.  However, after the rally, most names are trading at relatively high multiples, and some consolidation could follow, especially since Q4 could be a slower quarter.  Investors are also selling Taiwan as a funding source to go back to the US.
• There are some early signs of turning in Southeast Asian, with money starting to flow back to the region, given positive development on the tariff front with the US, and bottoming of the political situations, although it will take time for sentiment to fully recover in the region.

Emerging Market ex-Asia Equities

• Valuation in emerging markets ex Asia remains very stretched.  Geopolitical risk will remain a concern, as it is rising in Latin America, although investors are also positive on the elections in Latin America next year.

Japanese Equities

• The recent geopolitical tension between China and Japan has caused some impact on the tourism and net exports in Japan.  Also, the recent steepening of the JGB yield curve caused by the concern of increased supply of JGB and inflation due to the big fiscal budget has tightened liquidity condition in Japan.
• With the more hawkish guidance from Ueda in BOJ, the market has priced a rate hike in December from early next year.  This has stopped the depreciation in the JPY, but the JPY will remain weak given the significant supply of JGB.
• The weak JPY will support the equity market in the near term, but valuation is also getting stretched at the upper end of the historical range.

Asia Investment Grade Bonds

• Credit spreads of Asia investment-grade bonds are very tight now.  Most of the returns this year have come from duration.
• Although the market is now becoming more dovish in terms of US rate cuts, with the leading candidate of the next Fed Chair being more dovish, the current Treasury yields have more or less reflected that.
• Also, with the increasing budget deficit, we expect the US Treasury yield curve to remain steep.  It will be more difficult to gain from duration.

Asia High Yield Bonds

• Spreads continue to remain very tight at levels way below average, even after some correction in November.  As new supply remains subdue, investors are chasing for the same set of names in Asian high yield bonds as the search for yield continues.
• As shown in the Vanke and New World problems, there is risk in some specific Asian high-yield names that requires extensive work on the security selection.

Emerging Market Debt

• Spreads have become even tighter, but without many alternatives for yields, investors are still chasing.  As investors are preparing for year-end, activities in the space start to get quiet.

Gold

• Gold is now undergoing a period of consolidation after breaking above 4300.  This is a healthy consolidation to correct from the long-overbought condition.
• With silver breaking up high recently, the gold/silver ratio has dropped to a new low since 2021.  We believe gold will catch up soon to maintain a healthy ratio.  Moreover, the “debasement trade” to diversify the risk from government bonds and USD assets has not ended.
• Central banks continue to increase their gold holdings to diversify their FX reserve.  Institutional investors will also likely increase their gold allocation further given the current low positioning and the increasing risk in government bonds globally.

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 30 November 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.}

^{Investors should note that investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results. Investors should read the explanatory memorandum for details and risk factors in particular those associated with investment in emerging markets. Investors should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you.}

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