Global markets remain under pressure from elevated government bond yields, longer-term inflation risks and growing fiscal concerns, despite easing expectations for near-term US rate hikes. Equity markets remain increasingly selective, with AI-related sectors demonstrating relative resilience on strong earnings growth.

In China and Hong Kong, weak domestic demand, limited policy support and continued capital outflows weigh on sentiment. Across Asia, India and ASEAN face pressure from rising funding costs and elevated oil prices, while Taiwan and Japan benefit from AI-related demand, although valuations warrant caution. Korea continues to face foreign outflows, while political developments offer selective opportunities in Brazil.

In fixed income, elevated yields favor shorter-duration positioning, particularly in Asia investment grade bonds. Asia high yield remains relatively resilient but faces potential spillover risks from widening US credit spreads, while emerging market debt is supported by demand despite fiscal concerns in Europe.

Gold faces near-term headwinds from elevated yields, although central bank buying and de-dollarization remain supportive over the longer term. Overall, a multi-asset approach remains valuable in navigating uncertainty, while rising cross-asset correlations reinforce the importance of income as a source of portfolio returns.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 30 September 2026

China / Hong Kong Equities

• Although the market has scaled back expectations for an October rate hike and now prices in only one remaining hike in December, following softer non-farm payrolls data, less hawkish comments from Fed officials and a temporary ceasefire in the Middle East, long-end US Treasury yields remain elevated amid fiscal concerns and longer-term inflation risks.
• This has weighed on risk assets broadly, with AI-related sectors remaining a notable exception. Higher interest rates have led to valuation de-rating across most sectors, as elevated funding costs are expected to weigh on earnings growth. Investors remain relatively confident in the AI sector, where earnings growth is still expected to exceed 30% in the near term, making these companies relatively less vulnerable to higher interest rates than other sectors.
• Meanwhile, China’s limited stimulus measures announced ahead of the National Day holiday, including mortgage interest subsidies for first-time buyers of lower-priced properties, disappointed market expectations. Investors have consequently largely priced out the possibility of further near-term stimulus.
• Capital outflows from the China and Hong Kong markets have continued, particularly following the holiday. Hong Kong banks have also come under pressure alongside other Asian banks, amid concerns over rising funding costs and potential losses on long-duration bond holdings. Near-term market sentiment is likely to remain weak.

China A-Shares

• Consumption during the National Day holiday remained subdued. Market momentum continues to be weak amid broader global macroeconomic concerns and persistent weakness in the domestic economy.
• Meanwhile, growing concerns that the US Federal Communications Commission (FCC) may ban Chinese optical components have weighed on sentiment towards the A-share technology sector, which had previously been a key driver of market performance. This has, in turn, intensified selling pressure across the broader market.

Asia ex-Japan Equities

• Elevated US Treasury yields have weighed on most Asian markets, particularly ASEAN and India, as a strong US dollar and rising USD funding costs add pressure, while persistently high oil prices continue to exacerbate inflation concerns. As a result, India is expected to raise interest rates for the first time in four years, with other ASEAN countries potentially following suit.
• In contrast, technology-driven markets such as Japan and Taiwan have remained relatively resilient, benefiting from strong AI-related demand from the US. Robust earnings growth has also made these markets relatively less vulnerable to rising interest rates.
• However, the Korean market remains weak amid continued foreign investor outflows. Concerns over potential memory chip specification downgrades have emerged, while investor attention towards major Korean memory companies has shifted from earnings growth to shareholder returns. Meanwhile, the corporate share buyback programmes that have supported the market are approaching their conclusion, leaving investors with limited appetite to increase their exposure to Korean equities.

Emerging Market ex-Asia Equities

• Elevated US Treasury yields and European government bond yields continue to weigh on emerging markets ex-Asia. Brazil remains a notable exception, with market sentiment buoyed by the right-wing party’s lead in the first round of elections and hopes for meaningful policy changes. However, investors often react excessively to such political developments initially, with the subsequent realization of these events potentially triggering profit-taking following the initial rally.

Japanese Equities

• The temporary stabilization of USD/JPY has helped restore some investor confidence in the Japanese equity market. With a US rate hike in October now appearing unlikely, near-term pressure on the BOJ to raise interest rates again has also eased.
• However, following the market rebound, valuations, particularly among AI hardware-related stocks, have returned to elevated levels, suggesting that investors are likely to become increasingly cautious. Meanwhile, elevated government bond yields and fiscal concerns are becoming broader global challenges, including in Japan.

Asia Investment Grade Bonds

• US Treasury yields remain elevated following the sharp rise in September. Market concerns have shifted from near-term inflation pressures towards longer-term inflation risks and fiscal sustainability. Widening budget deficits in France and other European countries have further reinforced these concerns.
• Against this backdrop, Asia investment grade bonds continue to face pressure from duration risk, with most investors preferring the shorter end of the yield curve and waiting for yields to stabilize before adding duration exposure.

Asia High Yield Bonds

• Asia high yield spreads remain well below historical average levels amid subdued new issuance. The asset class is relatively less sensitive to duration risk given its shorter-maturity profile, although rising funding costs could still exert pressure, particularly on Southeast Asian issuers.
• Meanwhile, spreads in the US CCC-rated segment have widened recently, while B- and BB-rated bonds have remained relatively resilient. However, a further deterioration in the US high yield market, particularly more pronounced spread widening among lower-rated issuers, could spill over into Asian high yield bonds.

Emerging Market Debt

• Emerging market bond spreads remain tight, while elevated US Treasury yields continue to keep investors cautious on duration. Nevertheless, EM bond spreads are expected to remain relatively stable, supported by strong investor demand.
• However, the recent surge in European government bond yields has revived concerns reminiscent of the European sovereign debt crisis in 2012–2013, potentially weighing on investor sentiment towards emerging European debt.

Gold

• While continued central bank buying remains supportive of gold prices, rising US Treasury yields and elevated oil prices are creating near-term headwinds for precious metals. We remain constructive on gold over the longer term, supported by the ongoing de-dollarization trend and the debasement trade. However, elevated bond yields are likely to cap the upside for gold in the near term.

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 2026.

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^{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.}

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