Global markets are buoyed by record-high liquidity, a weakening USD, and broad rate cuts, with U.S. equities hitting new highs. While tariff uncertainty lingers, markets appear optimistic that growth drivers—such as tax cuts and low oil prices—will mitigate downside risks.

In China and Hong Kong, improving macro data and passive inflows support equities, though active funds remain cautious. A-shares have started to catch up, led by tech and financials, with policy reform around overcapacity being a potential catalyst.

Asia ex-Japan benefits from capital reallocation, but high tariff rates and front-loaded exports may weigh on near-term performance. Latin America’s outperformance is challenged by unexpected tariff hikes, while Japan faces election uncertainty, rising bond yields, and potential corrections.

Asian credit markets remain firm, supported by attractive yields despite idiosyncratic credit concerns. Lower USD aids Southeast Asia funding. Gold holds firm as a volatility hedge, and multi-asset strategies remain attractive amid rising cross-asset correlations and demand for income stability.

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

China / Hong Kong Equities

• Global liquidity (global M2) has reached close to a record high due to lower USD and global rate cuts, and the ample liquidity has pushed global equity markets higher.
• US equities have broken all-time highs, driven by the passage of the One Big Beautiful Bill Act to stimulate growth expectations. Also, there is a rising rate cut hope due to more controllable inflation. USD continues its structural downtrend.
• Although the tariff remains highly uncertain, with the announced tariff rates to most countries now as high as those on liberation day, the market has high hopes for further negotiation that the final tariff rates will be lowered. The market has already looked past tariffs as the lower oil price and tax cut should be able to stimulate growth to offset the impact of tariffs.
• 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, with further US-China trade negotiations and potential improvement in the relationship, active funds may narrow their underweight over time.
• Macroeconomic data in China is gradually improving. China is likely to continue the wait-and-see approach and release stimulus gradually when needed. 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 Southbound flow. 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, while A-share’s valuation is relatively attractive.
• Investors will continue to focus on the sectors with higher growth visibility. Given the relaxation of some technology export restrictions by the US, the A-share tech sector would continue to lead the market.
• The government’s direction on cutting supply to correct the over-capacity issue in sectors such as material and solar is also a positive sign, although no concrete details yet.

Asia ex-Japan Equities

• With the expectation of continuous USD weakness, there is a sign of the beginning of capital re-allocation back to Asia. The increasing risk appetite with ample liquidity is favorable to Asia markets. Valuation is diverged within Asia, with India and Taiwan above average and HK/China and Korea trading close to average. Southeast Asia is still below average.
• South Korea, led by the new President Lee, continues to pass shareholder-friendly policies to narrow the “Korea discount”. Although the market has already rallied back to the historical average level, these policies should help to push up the valuation further. Foreign investors have just started increasing exposure in Korea and are still underweight. There is further room to go.
• However, due to the current higher-than-expected tariff rates to most of the Asian countries (except China, Taiwan, and India, which have not announced yet) which are close to those announced on the liberation day (except Vietnam is much lower), the highly uncertain outcome of tariff will increase volatility in Asia. Also, there will be a slowdown in export demand in Asia in Q3 due to a large degree of orders having been pulled forward to Q2.

Emerging Market ex-Asia Equities

• Emerging markets ex-Asia, particularly Latin America, have outperformed significantly in the first half. However, the tariff announced on countries such as Brazil and some other EM ex-Asia countries is now a surprise as they are much higher than on liberation day. The market will remain volatile.

Japanese Equities

• The current poll shows that there is a chance of the LDP losing majority seats in the upcoming election on 20 July. As other parties are proposing a much bigger fiscal stimulus package to ease inflation concerns, long-end JGB yields have shot up with the expectation of larger JGB issuance.
• Also, Japanese insurance companies are reducing their JGB duration given the uncertainty in the election. The rising long-end JGB yields have tightened liquidity.
• Meanwhile, with the uncertainty in the election, Japan may have a difficult time having any concrete negotiations with the US on the trade deal before August 1st. If Japan remains at a 25% tariff, it will hit the earnings outlook of its exporters quite significantly.
• As the market has been driven by foreign inflows in the past months, there will be corrections in the market as investors will remain cautious in the near term before the election.

Asia Investment Grade Bonds

• With the Fed being patient, although there is higher hope of a rate cut from the market, we believe the 10-year Treasury yield will remain range-bounded between 4.3% – 4.5% in the near term, and the 30-year Treasury yield will remain around 5%. The upcoming Treasury auctions will be closely monitored.
• Asia investment-grade bond spreads have gone back 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 have narrowed to below average.  The recent perpetual coupon deferral by New World Development and the default of bank loans from Emperor Group have caused increasing concern in the Hong Kong property sector and the smaller local banks.
• However, demand for Asian high-yield bonds remains strong overall. Lower USD has helped relieve some funding pressure for the Southeast Asian companies.

Emerging Market Debt

• Spreads remain tight, but the stabilization of the US Treasury yields helps, and 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-exporting emerging markets.

Gold

• The gold price remains in a consolidation phase. While the market has become less risk-adverse, there is no sell-off in Gold given it is supported by lower USD and still the heightened volatility in the market.
• 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 30 June 2025.

Know more about Value Partners Asian Income Fund

^{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.}

^{This article has not been reviewed by the Securities and Futures Commission of Hong Kong. Issuer: Value Partners Hong Kong Limited.}