Global markets are entering a period of heightened volatility following Kevin Warsh’s nomination as the next Fed Chair, raising uncertainty around future U.S. monetary policy and balance sheet direction. This has triggered a rotation from crowded technology trades toward value and old-economy sectors.

In Greater China, mixed macro data, soft consumption, and VAT concerns weigh on sentiment, with earnings visibility becoming increasingly important. China A-shares are supported by a strengthening RMB, though elevated valuations have led to a shift from high-flying tech toward financials and industrials.

Across Asia ex-Japan, divergence is widening. Taiwan and Korea continue to benefit from AI-driven hardware demand and earnings upgrades despite stretched valuations, while Southeast Asia shows selective recovery amid improving political clarity and trade developments. Japan’s fiscal expansion outlook supports growth, though rising JGB yields may pressure valuations.

In fixed income, Asian IG and HY spreads remain tight, limiting upside and increasing duration risk amid potential curve steepening. Emerging market assets appear crowded, particularly in Latin America. Gold volatility has risen sharply, though structural central bank demand persists. In this environment, diversified multi-asset strategies with a focus on income remain critical.

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

China / Hong Kong Equities

• Volatility in the market has increased with Kevin Warsh being nominated by Trump as the next Fed chair.  As Warsh is a prominent balance sheet hawk and is less data-dependent and less transparent in forward guidance, the market is concerned about the increasing uncertainty in future Fed policy.
• Also, Warsh supports lower borrowing costs and better small-business credit access and believes the Fed’s focus should shift from asset inflation to productivity, wages, and real economy growth.
• Therefore, we have started to see the market shifting from the crowded tech sectors back to the old-economy sectors. We believe this higher volatility in the market will be a new normal, as usually there is a regime shift when a new Fed chair is onboard.
• Macroeconomic data in China is still mixed, with consumption remaining soft.  The recent VAT hike in telecoms hurts market sentiment with the renewed concern on VAT hike in other sectors particularly the internet and gaming.
• Together with the style shift in the US, the Hong Kong China market has also started to see some shift from the tech sectors to the value sectors.
• With the earnings season coming, the market will focus more on the earnings outlook, and the market needs to see earnings bottoming to have more support on further rally.

China A-Shares

• RMB continues its strengthening as PBOC allows gradual appreciation of the RMB to aid in supporting domestic demand.
• On the other hand, as valuation is not cheap in general and the remaining weak macroeconomic environment, the high-flyer tech sector has started to correct, and there is a shift to the financial and industrial sectors.
• After the Lunar New Year, the market will start looking forward to the NPC meeting in March.  There have been minimal expectations of anything positive to come out from the NPC, and that sets up well for any positive surprise.

Asia ex-Japan Equities

• There is increasing divergence within Asia, with Taiwan and Korea continuing to lead the market while Southeast Asia continues to lag, although there is some catch-up.
• Taiwan and Korea have not been much affected by the correction in the tech sector in the US, as these two countries’ tech sector is mostly hardware-focused, which continues to benefit from the AI infrastructure development with the aggressive CapEx from the CSPs in the US.  Also, the market rally is supported by upward earnings revision, although valuation is getting even more expensive.
• Within Southeast Asia, there is also divergence in terms of development.  The trade deal between the US and India to lower tariffs to 15% is positive for the country after a significant selloff.  Foreign money started to flow back to the country, but after the immediate rally, the market also takes a more wait-and-see approach.
• The election in Thailand is also a positive, given that the Thai Royalists notched a surprise win, and uncertainty is removed.  There could be more upside to Thailand as the valuation is still below average.
• On the other hand, MSCI’s free float concern in Indonesia and Moody’s downgrade on the outlook of Indonesia will keep investors remain cautious.

Emerging Market ex-Asia Equities

• Valuation in emerging markets ex Asia has become stretched leading by the outperformance of Latin America. It has been a crowded trade. Volatility in commodity prices will increase the volatility in this region.

Japanese Equities

• LDP’s supermajority win in the lower house election has boosted market sentiment.  PM Takaichi will pursue fiscal expansion and structural reform without much hurdle.
• These stimulus policies shall boost Japan’s GDP growth expectation. Both domestic and foreign investors are positive about this landslide election win.
• On the other hand, valuation is getting more expensive. With the potential tax cut and fiscal expansion, JGB yields will continue to get higher, which in the longer term will impact liquidity and valuation of the market.

Asia Investment Grade Bonds

• Credit spreads of Asia investment grade bonds are very tight with steady new supply.
• The Treasury yield curve may get steeper with Kevin Warch being nominated as the next Fed chair, as he is likely to cut rates while shrinking the Fed’s balance sheet.  Duration risk is becoming higher.

Asia High Yield Bonds

• Spreads of Asian high yield continue to remain very tight at levels way below average, although they remain above the spreads of US high yield.
• As new supply remains subdued, investors are chasing for the same set of names in Asian high yield bonds as the search for yield continues. Although valuation is high, default will remain low as the refinancing progress is improving in Asia.

Emerging Market Debt

• Spreads have become even tighter, and like EM equities, it is a crowded trade, especially in Latin America.  Without many alternatives for yields, investors are still chasing.

Gold

• The increasing speculative positioning in Gold has increased the volatility in the precious metal, not seen in decades. The higher volatility in Gold will become a new normal with the increasing leverage plays by retail investors.
• On the other hand, central banks continue to buy Gold to diversify away from US Treasuries.  Institutional investors’ gold positioning remains low and is likely to increase over time.

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 January 2026.

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