Recent market dynamics reflect a complex mix of resilience and caution. US equities have rebounded on strong Q1 earnings and trade optimism, yet tariffs remain at a lingering risk with broader economic impact still unfolding. China and Asia ex-Japan equities showed recovery, supported by early policy easing and a weaker USD, though structural challenges and geopolitical tensions persist. In China, April’s weak PMI and falling exports reveal visible economic strain.

Southeast Asia benefits from policy flexibility, while Taiwan and India face specific currency and political risks. Emerging markets outside Asia outperformed, aided by a softer USD and limited tariff exposure, but geopolitical tensions in Europe and the Middle East warrant caution.

Bond markets remain stable but fragile amid stagflation concerns. Gold remains supported by central bank demand and market volatility. In this environment, multi-asset strategies provide diversification benefits, though rising asset correlations highlight the importance of stable income generation.

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

China / Hong Kong Equities

• The US equity market has fully recovered the loss since the tariff announcement on April 2^nd due to 1) economic data so far remains resilient and better than the feared surveyed numbers; 2) Q1 earnings of the companies reported so far beat expectation although it included some degree of pull in; and 3) the market has priced in certain degree of trade deal as Trump has been back down on his stance on tariff with increasing exemptions and softer tone.
• However, we believe that Trump will not roll back all the tariffs, but a certain amount will be reduced.  The longer-term impact of the tariff and hit on confidence will remain to be seen in the economic data.  As the Fed mentioned, it is patient with rate cuts given the risk of both increasing unemployment and rising inflation, and uncertainty remains elevated.
• The market has acted towards the optimistic side, but further rally from here will require concrete details of trade deals and evidence from the economic data that the economy remains  However, we believe the trend of diversification away from US assets will continue, given the lower USD and higher risk premium investors demand on US assets amid the trade uncertainty.
• The timing of the RRR cut and 10bp policy rate cut in China is earlier than expected, sending a signal that China is prepared to support the economy.  However, China is also in a wait-and-see approach in the trade situation while assessing the economic impact to further release greater policy support.
• We expect the market to remain range-bounded unless there is significant progress made in the trade talk with the US.  Hong Kong equity market on the other hand should benefit from the sharp drop in HIBOR given the strong HKD as most of the sectors in Hong Kong are interest rate sensitive particularly the local property developers.

China A-Shares

• China’s PMI numbers in April were the weakest in 16 months, and together with the exports to the US slumping by 21% in April, the negative impact of the tariff on China’s economy is increasingly visible.  Although the rate cut magnitude is relatively small, the earlier-than-expected timing is a positive signal.
• China has also softened its stance towards the US’s tariff talk.  While the market has already expected a certain degree of de-escalation, the prolonged list of problems between the two countries will require a much longer time to come up with a concrete deal.
• Consumption spending in May Golden Week was moderately solid, implying a gradual recovery in consumption while spending remains cautious and selective.

Asia ex-Japan Equities

• All equity markets in Asia have fully recovered back to the pre-tariff levels, indicating optimism towards the de-escalation of the trade war.
• The lower USD has given support to countries in Southeast Asia, particularly, allowing them greater flexibility of rate cuts.
• The sharp TWD appreciation has created concern among Taiwan insurance and banks, however, not much on the tech sector yet.  TWD has stabilized around the 30 level.  Further appreciation will start to have an impact on the margin of the export companies, although so far, the impact is within control.
• The upcoming election in June in Korea may also create some near-term volatility.  The conflict between India and Pakistan has been more intense than expected, which will have near-term pressure on both countries’ currencies and equity markets.  However, the market impact should be short-lived.

Emerging Market ex-Asia Equities

• Emerging markets ex-Asia, particularly Latin America, have outperformed significantly as the impact of the US tariff on them is relatively mild.
• Also, countries such as Argentina have good development in restructuring their currency and have gained IMF support.  The lower USD also benefits EM’s equity markets.
• However, geopolitical risk remains heightened in Emerging Europe and the Middle East with no evidence that Russia and Ukraine will cease hostilities soon.
• The weak oil prices will also negatively impact some emerging countries.

Japanese Equities

• JPY has strengthened significantly as the USD has weakened.  BOJ has also sounded very cautious about further rate hikes, highlighting the uncertainty about the economic outlook.
• However, given the elevated inflation in Japan, we believe BOJ will still need to hike interest rates, but perhaps after the tariff talk with the US is more settled.
• Companies reported so far have had a strong Q1, although management has sounded cautious and has been using 140-145 as the assumption on the JPY.
• If JPY appreciates further, it will have a downward pressure on companies’ earnings, and the unwind of the Yen carry trade in the previous years will start to intensify again.

Asia Investment Grade Bonds

• US Treasury yields have stabilized after a very volatile April.  With the Fed being patient, we believe the 10-year Treasury yield will remain range-bounded between 4.2% – 4.4% in the near term.
• However, if the Fed waits longer and if the risk of stagflation is rising, US Treasury yields will have the upside risk and will become volatile again.  Most investors are cautious about taking duration risk now.
• Asia investment-grade bond spreads have widened since the tariff announcement but remain tight on a historical basis.

Asia High Yield Bonds

• Spreads have widened since the tariff announcement and have recovered by about 2/3 so far, lagging the recovery in equities.
• Investors have been cautious.  Lower USD has helped relieve some funding pressure for the Southeast Asian companies.

Emerging Market Debt

• Geopolitical risk remains elevated, while lower oil prices have negatively impacted sentiment in emerging market bonds.  Spreads remain tight even after some corrections since the tariff.

Gold

• Gold price is consolidating after breaking 3500.  While the market has become less risk-averse, 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.

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.

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.}