Global markets face a more challenging backdrop as persistent inflation, elevated oil prices and rising US Treasury yields reinforce expectations of tighter monetary policy. Equity upside may therefore remain constrained, with investors becoming increasingly selective.

In China, soft domestic demand and limited policy support continue to weigh on momentum, although the recent correction has improved valuations. Across Asia, technology markets have stabilized following earlier deleveraging, but elevated yields, AI-related uncertainties and rising funding costs remain headwinds. Japan also faces risks from further BOJ tightening and JPY appreciation, while higher oil prices could provide relative support to commodity-exporting emerging markets.

In fixed income, elevated Treasury yields continue to favor shorter-duration positioning. Asia investment grade bonds remain exposed to duration risk, while Asia high yield benefits from shorter maturities but could face pressure from higher funding costs. Emerging market debt remains supported by resilient demand despite tight spreads.

Gold faces near-term pressure from higher yields, although structural support from central bank demand and de-dollarization remains intact. 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 31 August 2026

China / Hong Kong Equities

• With the higher-than-expected month-on-month increases in US August core CPI and PPI, the market is now pricing in an almost certain rate hike in September.
• Our view has been that it would be better for the Fed to act earlier rather than later. With oil prices surpassing USD100 amid the escalating conflict in the Middle East, it has become increasingly difficult to justify holding rates unchanged.
• A September rate hike would therefore remove one source of near-term uncertainty, with an October hike likely taken off the table, allowing the market to shift its focus towards uncertainty surrounding the US mid-term elections.
• However, as inflation becomes an increasingly serious global concern, this could mark the beginning of another rate-hike cycle, which would be negative for risk assets overall. With the US 10-year Treasury yield rising above 5%, global equity markets are likely to remain under pressure.
• The financial sector has been one of the few areas continuing to attract inflows, as banks generally benefit from higher interest rates and long-end yields. Hong Kong banks and insurers have consequently performed well.
• Chinese equities, meanwhile, have already undergone a correction amid continued economic weakness, bringing valuations back to more attractive levels. The Xi-Trump meeting on September 24 could potentially deliver some positive surprises, particularly as market expectations for the meeting are currently very low.

China A-Shares

• Economic weakness remains the biggest hurdle for the Chinese market, as domestic demand continues to be subdued despite the gradual appreciation of the RMB. Meanwhile, the government remains reluctant to introduce large-scale policy support.
• Following the correction in July across heavily traded technology stocks in the China A-share market, investors have continued to reduce their positions. Market momentum is likely to remain weak amid broader global macro concerns and continued weakness in the domestic economy.

Asia ex-Japan Equities

• Following the significant deleveraging across the technology sectors in Korea, Taiwan and Japan, markets staged a relief rebound in August, supported by still-strong second-quarter earnings and outlooks.
• However, markets are now entering a more range-bound phase as momentum deteriorates amid elevated yields and inflation concerns. Short interest and put-call ratios in Asia ex-Japan equities have declined, although investors remain cautious about adding positions.
• In addition, Anthropic’s call to slow the development of frontier AI models due to safety concerns, with support from OpenAI and SpaceX, could prompt investors to reassess the potential for slower demand for technology hardware and weaker margin expansion among these companies going into next year.
• With oil prices rising and the US expected to raise interest rates, India and ASEAN markets are beginning to face renewed pressure as funding costs increase. Meanwhile, Indonesia’s appointment of a new finance minister could help restore some investor confidence.

Emerging Market ex-Asia Equities

• Elevated US Treasury yields are likely to cap further upside for emerging markets ex-Asia. However, sentiment remains relatively strong in Latin America, with the upcoming election in Brazil potentially bringing meaningful changes to the policy outlook. Rising oil prices should also provide support to oil-exporting markets, including Russia and Latin America.

Japanese Equities

• As inflation concerns rise amid elevated oil prices, the market now expects the BOJ to raise interest rates not only in September but also in December, with further tightening potentially continuing into next year.
• Long-end JGB yields have continued to rise, with the 10-year yield breaking above 3% and the 30-year yield exceeding 4% for the first time in more than 30 years. This has driven USD/JPY down from around 160 to below 155 and triggered some unwinding of carry trades.
• Many Japanese exporters have based their earnings assumptions on USD/JPY at around 155; therefore, further JPY appreciation could raise concerns over potential downward earnings revisions.

Asia Investment Grade Bonds

• US Treasury yields continue to move higher, with the 10-year yield rising above 5% and the 2-year yield approaching 4.7%. Inflation remains the biggest concern globally, with the Fed appearing to be behind the curve and raising concerns that another rate-hike cycle could be starting.
• While the 10-year yield moving above 5% should attract some demand, long-end yields are likely to remain higher for longer given continued macro uncertainty on both the fiscal and monetary fronts.
• Asia investment grade bonds will remain under pressure from duration, with most investors preferring the short end of the curve and waiting for yields to stabilize before adding duration.

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 given its shorter-maturity profile. However, it could still face some pressure from rising funding costs, particularly among Southeast Asian issuers.

Emerging Market Debt

• Emerging market bond spreads remain tight. Elevated US Treasury yields are likely to keep investors cautious on duration. Nevertheless, EM bond spreads should remain relatively stable, supported by strong investor demand.

Gold

• Although central bank buying continues to provide support to Gold prices, the increasing US Treasury yields, and oil prices give the pressure to precious metals.
• We remain positive on Gold over the long term due to the continuous de-dollarization trend and debasement trade, however, the recent expanding conflict in the middle east will cap the upside of Gold for now.

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 2026.

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.}

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