Global markets maintained strong momentum as the Fed officially resumed its rate-cut cycle, providing near-term support for risk assets. However, valuations across most markets have become stretched, particularly in AI-related equities, where investor sentiment remains driven by FOMO.

In China, macro data remains mixed with consumption and property still weak, prompting a cautious and gradual policy approach. The rally in Chinese and Hong Kong equities now relies on earnings recovery to sustain momentum.

Elsewhere in Asia, North Asian markets such as Korea and Taiwan outperformed, supported by robust tech exports and AI-driven demand, though valuations are approaching the upper range, suggesting potential consolidation. Japanese equities benefited from expectations of continued monetary easing under Prime Minister-elect Takaichi, but rising bond yields may limit upside.

In fixed income, Asian credit spreads have tightened significantly, limiting further upside, while high-yield valuations appear less attractive. Gold has surged past the 4,000 level amid global political uncertainty and rising central bank demand. With cross-asset correlations increasing, multi-asset strategies focused on steady income generation remain favored in a more volatile investment environment.

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

China / Hong Kong Equities

• Momentum in global equities picked up significantly as the Fed has officially kicked off the rate cut cycle again after a long pause.  Without recession, a rate cut cycle is positive for risk assets.
• However, asset prices are already high with valuation multiples over one standard deviation above averages for most markets.  There is “FOMO” (fear of missing out) in equity markets, especially in the AI theme.
• The US government is under shutdown, and it will last for a bit longer as there is still no progress on the bill passage by Congress.  Therefore, there will be no economic data this month to support the FOMC decision at month end. However, the market is still fully priced in another rate cut in October, followed by another one in December.
• Macroeconomic data in China is still mixed, while consumption during the Golden Week is largely in line with or weaker than expected.  The property market also remains sluggish.
• China is likely to continue the wait-and-see approach and release stimulus gradually when needed. We don’t expect significant easing policies during the plenary session in late October.
• The market has rallied largely from the valuation perspective so far, but for the rally to continue, we need to see earnings recover strongly to support the valuation.
• In terms of style, investors will still prefer the growth segments such as AI / tech localization for clearer visibility and are willing to pay up for that.

China A-Shares

• There is a continuous pick up in retail investor interest in the China A-share market, as evident by the trend of shifting from bank deposits to non-bank financial institutions, suggesting Chinese households are increasing their participation in the stock market.
• On the other hand, foreign institutional investors remain underweight in China.  Although the underweight has narrowed but foreign investors haven’t participated much in this rally.
• Valuation has started to approach the high end of the historical range, especially in growth sectors such as AI/ tech sectors.  There could be some profit taking after the Golden Week, as the broad economic activities remain mixed.

Asia ex-Japan Equities

• After the rally in Q3, valuation in North Asia has started to get stretched, 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 brought renewed interest to the market after a pause.
• Taiwan rallied on the increased AI investment and demand in the US.  However, after the rally, most names are trading at relatively high multiples, and some consolidation could follow, especially if the momentum is slower in Q4.

Emerging Market ex-Asia Equities

• The ongoing geopolitical uncertainties remain the biggest near-term risk to emerging markets ex Asia.  Strong commodity prices and a Fed rate cut are supportive, on the other hand.

Japanese Equities

• Takaichi’s surprise win in the LDP election has caused some major changes in the market.  She is also likely to be the next Japan Prime Minister.
• Her policy stance, “Sanaenomics”, is similar to “Abenomics”, which proposes both fiscal and monetary easing.  This has caused concern of an increased supply of Japanese government bonds (JGB) and inflation in the future, which has caused long-end yields of JGB to rise.
• On the other hand, as BOJ may not hike rate in October yet due to Takaichi’s easing biased, JPY has weakened significantly.
• The weak JPY will support the equity market in the near term, but for the longer term, the market will watch for the support rate of this new Prime Minister and the effectiveness of her policies.

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, and further gain could be relatively limited as the market has already factored in 2 more rate cuts this year.

Asia High Yield Bonds

• Spreads continue to narrow to further below average (now less than half of the historical average only).  As risk appetite has increased, investors are chasing to the same set of names in Asian high yield bonds as new supply remains limited.
• Absolute yields have also started to come down due to the very tight spreads.  Risk-adjusted reward has started to get much less attractive.

Emerging Market Debt

• Spreads have become even tighter, but without many alternatives for yields, investors are still chasing.  Higher commodity prices are also supportive.

Gold

• Gold price broke out the psychological level of 4000 due to the US government shutdown, Japan’s election, and the political instability in France.
• Investors are chasing the “debasement trade” to diversify the risk from government bonds and USD assets.  Central banks also continue to increase their gold holdings to diversify their FX reserves.
• After the recent rapid rally, given Gold price is at a highly overbought level, there could be some technical setbacks or consolidation after the above mentioned political uncertainties have settled down.

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 September 2025.

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