Global equities have gained momentum as investors price in a more aggressive Fed easing cycle beginning in September, following softer U.S. employment data and in-line CPI. Markets now expect 75 basis points of cuts this year and next, though profit-taking could emerge after the FOMC unless the Fed surprises with a larger move or dovish tone.

In China and Hong Kong, macro data remain mixed and valuations slightly above average, with policy support expected to be gradual. A-shares are drawing more retail participation, but stretched valuations in AI and tech may trigger near-term profit-taking. Asia ex-Japan continues to benefit from USD weakness and lower rates, though Korea and Taiwan may consolidate after strong rallies, and ASEAN remains inexpensive but constrained by political risk.

Asian credit markets are resilient, with IG spreads tight and HY demand strong despite limited upside. EM ex-Asia faces geopolitical risks, while gold has broken higher on central bank demand. Multi-asset strategies remain attractive for diversification and income.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 31 August 2025

China / Hong Kong Equities

• Momentum in global equities picked up significantly as the market is factoring in a more aggressive rate cut from the Fed starting in September.
• Due to several weak employment data points in recent weeks with downward revisions to previous data, which suggested a weakening labor market in the US, investors expect the Fed to pay more attention to employment vs. inflation, which supported the rate cut thesis.
• Also, the last data point before the FOMC meeting on September 17th, which is the August CPI, was in line with expectations, while the effect of tariffs on inflation is still limited without widening broadly.  This caused the market to fully price in a peak rate cut of 75bps this year and another 75bps next year.
• However, as the market has already reflected on this aggressive Fed rate cut, there could be some profit-taking after the FOMC day to sell on news, unless the Fed makes a pre-emptive move to cut 50 bps or makes very dovish comments.
• Macroeconomic data in China is mixed with FAI, industrial production, and consumption lower than expected in August, while PPI was less negative.  China is likely to continue the wait-and-see approach and release stimulus gradually when needed.
• While valuation is back slightly above average, we expect investors to continue rotating among the sectors that have higher growth visibility.
• Foreign active Asia ex Japan long-only funds turned to overweight China for the first time in August since the last 4 years.  Although global and EM active funds are still underweight China, the underweight continues to narrow, and the interest in China continues to pick up.

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 in July and August, suggesting Chinese households are increasing their participation in the stock market.
• However, there was a rumor that the government may attempt to calm down the rally, so the market may take a pause first.
• Also, given the recent weaker-than-expected macroeconomic data, the market may expect the government to roll out more stimulus; however, the larger the expectation, the bigger disappointment could be, as we continue to expect the government to take a gradual wait-and-see approach rather.
• Moreover, the recent rally in the A-share AI/tech sector has caused some concern about valuation, which could invite some profit-taking in the near term.

Asia ex-Japan Equities

• The structural weakening of the USD and the lower interest rates continue to provide a positive backdrop for Asia ex-Japan equities.
• South Korea, with more progress on the Value-Up program and the rollback on earlier plans to lower thresholds for capital gain tax, triggered renewed interest in the corporate restructuring of the holding companies.
• Taiwan rallied following strong Oracle and Broadcom guidance on AI revenue.  However, after the rally, most names are trading at relatively high multiples, and some consolidation could follow, especially after the FOMC meeting.  However, we expect Taiwan to continue to move along with the US tech.
• ASEAN markets remain very cheap, and a catch-up rally may start as these countries will be more aggressive in cutting rates following the Fed.  However, political uncertainties remain the biggest hindrance to these markets such as Indonesia and the Philippines.

Emerging Market ex-Asia Equities

• The renewed potential sanction on Russia due to the rising NATO concern is the biggest near-term risk to emerging markets ex Asia.  Strong commodity prices due to a weaker USD and Fed rate cut is supportive, on the other hand.

Japanese Equities

• Ishiba has announced his resignation, and the election for the LDP president will be held on Oct 4th.  Koizumi and Takaichi are the leading candidates, and they are proposing a larger fiscal budget.
• Due to this political uncertainty, JPY remains relatively weak, and even the USD has been weakened due to the Fed rate cut expectation.
• Also, there is increasing uncertainty about whether BOJ will hike the rate in the October meeting, given the upcoming change of prime minister.  Market will be more in a sideline watching mode first.

Asia Investment Grade Bonds

• The US Treasury yields have already reflected a peak rate cut of 75 bps this year by the Fed.  Therefore, further downside to the Treasury yields are quite limited. 
• Also, credit spreads of Asia investment-grade bonds are very tight now.  Most of the returns this year have come from duration, and further gains could be relatively limited. 

Asia High Yield Bonds

• Spreads continue to narrow to further below average (now half of the historical average only).  The Asia industrial high yield bonds were particularly strong given the improving fundamentals and macro backdrop. 
• Although capital gain opportunities have diminished due to the very narrow spreads, demand on Asian high yield bonds remains strong overall due to yield chasing.  Lower USD has helped relieve some funding pressure for the Southeast Asian companies. 

Emerging Market Debt

• Spreads remain tight, but a lower USD is supportive to the region.  Higher commodity prices are also supportive.

Gold

• Gold prices broke out from the consolidation range, finally, after the expectation of a more aggressive Fed rate cut.  Central banks also continue to increase their gold holdings to diversify their FX reserves. 
• Gold has now surpassed US Treasuries in global central bank reserves since 1996.  It now accounts for 27% of the global central bank’s reserves. 
• Gold also remains a good hedge to any spike in geopolitical risk.  After the recent rally, given gold price is at a highly overbought level, there could be some technical setback or consolidation before another breakup.

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 31 August 2025.

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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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