Global markets are experiencing a shift as US equities undergo a correction driven by growth slowdown concerns and trade uncertainties. In contrast, sentiment toward China and Hong Kong equities has improved, driven by rapid AI development and policy support. A-shares may catch up as valuation gaps narrow, while Asia ex-Japan equities benefit from a weaker USD, despite pressure on Taiwan’s tech sector. Emerging markets face headwinds from US tariff threats and falling oil prices.

Japanese equities remain pressured due to the stronger yen and slowing momentum, but corporate buybacks provide support. In fixed income, Asia investment-grade bonds show tight spreads amid strong demand, while high-yield bonds see selective chasing as yields remain attractive. Emerging market debt faces volatility from geopolitical tensions and trade issues. Gold prices stabilize as safe-haven demand persists. In this uncertain environment, multi-asset strategies with diversified income sources remain prudent to manage volatility.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 28 February 2025

China / Hong Kong Equities

• US equities started the correction, given the market’s worry about growth slowing down much quicker than expected. The uncertainties surrounding the tariff headlines are adding to the negative sentiment.
• Recent macroeconomic data such as ISM, unemployment claims, consumer confidence, etc. showed signs of economic slowdown in the US.  Part of it is due to the spending and staff cuts in the US government. Together with the concern about tariff and retaliation from other countries on US exports, the market has been corrected from the very crowded positioning and high valuation.
• As a result, flows have shifted from US equities to US Treasuries and the market is repricing a higher probability of rate cuts this year given the economic slowdown.
• On the other hand, investor sentiment on China continues to turn more positive given the rapid AI development.  Although the valuation of the broad HK/China equity market has returned to the historical average levels, the valuation of the tech and internet sector particularly has not.
• Also, although the numbers given out by the NPC so far are in line with expectations, the message of prioritizing consumption and innovation is a positive signal to the overall market.
• There are also signs of the rally broadening from the very narrow AI segment to a broader consumption segment which is a positive sign of a healthier and more sustainable rally going forward.

China A-Shares

• A-shares continue to lag behind the HK offshore market given the valuation of the HK market is more attractive to foreign investors and to Southbound investors.  However, as the valuation gap continues to narrow between A and H, we expect there will be some catch-up rally in A-shares.
• Given the market concern for a growth slowdown in the US, the USD has weakened and the expectation of the RMB to become stronger is getting higher, which is supportive to the market.  However, the uncertainties around US tariffs on China will still hinder the onshore sentiment.

Asia ex-Japan Equities

• The weaker USD and lower US Treasury yields are supportive for the Asia market after a significant correction esp. in Southeast Asia.
• After a period of continuous outflow and correction from India, its valuation premium to other markets has significantly diminished and the market has started to stabilize but investor interest is still lacking.  The lower USD and yields are also giving some breathing room to the Southeast markets although the concern for potential tariffs on them cannot be ignored.
• On the other hand, given the slowdown concern in the US and the slowing demand for advanced chip hardware, the Taiwan market will continue to be under pressure.  Korean market will be better given its low valuation and the ability to further cut rates if the US is cutting more this year.

Emerging Market ex-Asia Equities

• The biggest concern on the EM region remains the tariff threat from the US. Also, the sudden oil production increase by OPEC + will continue to put pressure on oil prices which will hurt emerging markets.
• In addition, the uncertainty surrounding Ukraine will also be a hang to the region’s sentiment.

Japanese Equities

• JPY strengthened as the interest rate gap between Japan and the US continues to narrow given the concern about the economic slowdown in the US causing a weaker dollar and lower rates.
• Also, with the close correlation to the US market, the momentum in the Japanese market has slowed and turned negative, esp. the export and tech sectors.
• On the other hand, share buyback and healthy corporate earnings continue to be supportive factors in the market.

Asia Investment Grade Bonds

• US Treasury yields have come down significantly given the worry of economic slowdown and spending cut by DOGE.  Spreads of Asia investment-grade bonds remain very tight.  Although absolute yields have come down as a result, demand remains strong with active new issuance.

Asia High Yield Bonds

• Spreads remain tight in Asian high-yield bonds as new issuance remains almost absent.  Given some positive development on some distressed names in this space, we see some chasing in the sector.  Also, the lower absolute yield in the Asia investment grade bonds has caused some money to shift to Asia high yield bonds.

Emerging Market Debt

• Spreads have been at tight levels below historical averages. With increasing uncertainties in the market, the outlook for emerging market bonds remains volatile.  The tariff impact on Mexico and Brazil will also add to further volatility in the market.

Gold

• After some minor corrections in gold prices to correct from the overbought technical levels, gold prices have stabilized and remain well supported.  Investors have been buying gold as a hedge against the uncertainties on Trump’s policies.
• Moreover, central banks are still buying gold in their reserves to lower their dependence on USD.  However, the psychological level of 3000 is a strong resistance, and gold prices may continue to consolidate in the near term.
• In the longer term, heightened geopolitical risks will continue to support the outlook of gold.  In addition to geopolitical worries, investors are concerned about the de-dollarization trend as USD may gradually be reducing its role as a global trade currency.

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.

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