Recent market volatility driven by the US tariff announcements has heightened uncertainty across global asset classes. For China and Hong Kong equities, markets appear to have marked a near-term bottom on April 9, although policy direction remains fluid. While China’s broader trade diversification and potential stimulus measures may cushion part of the impact, equity performance is likely to stay range-bound in the near term. Asia ex-Japan equities face export-related pressure, though weaker currencies and rate cuts in select countries offer some support.

In fixed income, Asian investment-grade bonds are challenged by rising US Treasury yields but maintain stable fundamentals, while high-yield valuations have become more attractive. Emerging market assets continue to face headwinds from rising yields and weaker commodity prices. Gold remains supported by safe-haven demand, though vulnerable to shifts in rate expectations. In this environment, multi-asset strategies may help mitigate volatility, though asset class correlations have increased, requiring careful risk management.

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

China / Hong Kong Equities

• The market chaos caused by the US tariff announcement since April 2nd has dramatically increased the uncertainty in the market and global economy.  After one week of chaos and the frequent changes in the tariff policies, we now believe that Trump has laid out the most extreme tariff scenario to the market already and therefore the near-term bottom of the market has been marked on April 9th.
• It has also been clear that the pain point for Trump’s put is the surge in US Treasury yields due to the selloff of long-end Treasuries by hedge fund unwind and foreigners as the goal of the Trump administration is to push down US Treasury yields.
• Although the tariff policies could keep changing, we believe that Trump will continue to walk back from the most extreme scenario announced on April 9th together with continuing negotiations with different countries.
• The heightened volatility in the market has hurt consumer, business, and investor sentiment and the risk of having a US recession is getting higher. Although it is not our base case, the risk of stagflation cannot be ruled out.
• In the near term, we believe that the stock markets will be in a range bound within around 10 – 15% range until there is a clearer direction to the negotiation.  We also believe the USD will remain weak and the US Treasury yield curve could steepen further until there is a Fed put.
• China is the center of Trump’s trade war with a 145% tariff imposed on Chinese exports except for some category exemptions.  China has also retaliated with 125% on all US imports.
• Although China’s economy will certainly be impacted by the huge tariff, China is more prepared this time as it has lessened its reliance on US exports with broader trade with other regions.  China can also front-load some stimulus tools, both monetary and fiscal, to offset some of the impact.
• Companies are also increasing share buybacks, and the national team is buying in the market as well.  However, before any negotiation happens, the China/ Hong Kong market is also more likely to be range-bounded between the April 2nd and April 9th levels.

China A-Shares

• Investors will continue to focus on the domestic sectors of the market, such as domestic consumption and tech localization.  China A-shares would be supported by companies’ share buybacks and the national team.
• Although negative CPI and PPI remain a challenge to consumer sentiment, the YoY drop is narrowing and should start seeing some reflationary trend in Q2.

Asia ex-Japan Equities

• Asia ex-Japan equities are hurt by the US tariff announcement, with the export-oriented countries such as Taiwan, and Singapore hurt the most.
• However, the weaker USD helped support the region, especially the Southeast Asia countries as their currencies had depreciated a lot previously and now, they have some breath room to cut interest rates to support their economies.
• India and the Philippines have announced interest rate cuts this month and we expect more countries to follow.  The 90-day delay in Trump’s reciprocal tariff on the Asian countries (except China) also gave them room for negotiation with the US which is likely to happen.

Emerging Market ex-Asia Equities

• Emerging markets ex-Asia is hurt by the 25% US tariff on steel and aluminum and the drop in oil price due to the production increase by OPEC and lower expected demand due to higher risk of recession.
• Also, there is not much progress on the Russia-Ukraine cease fire and the middle east tension is escalating again.

Japanese Equities

• JPY has strengthened significantly as the USD has weakened due to the selloff in the US Treasury and the rush to safe-haven currencies.
• Given the continuous heightened inflation caused by wage growth, BOJ is still likely to hike interest rates even though the JPY has already strengthened.  Also, we believe that letting JPY appreciate will be one of the requirements in the tariff negotiation with the US.

Asia Investment Grade Bonds

• The longer-duration Asian investment grade bonds are hurt by the significant surge in US long-end Treasury yields.  Spreads have been relatively stable given that most of the cash flow of the Asian investment-grade bonds is resilient even under the tariff environment.  Demand for Asian investment-grade bonds remains solid.

Asia High Yield Bonds

• Spreads have widened slightly given the negative market sentiment.  However, there is no panic selling in this space.  Lower USD has helped relieve some funding pressure for the Southeast Asian companies.
• After some spread widening, now the absolute yields of Asian high-yield bonds are attractive to investors, esp. relative to the US high-yield bonds.

Emerging Market Debt

• The surge in the US Treasury yields has caused investors moving away from emerging markets bonds.  Lower oil and industry metal prices also hurt the sentiment of emerging markets.

Gold

• Gold prices continue to break all-time high as there is a fight for safety.  Given the sell-off in US assets, including US Treasuries, Gold becomes the number one safe-haven asset in this market chaos.
• Central banks also continue to increase their gold reserve given the risk premium now adding to the USD and US assets given the recent market chaos.
• However, profit-taking is also increasingly likely if US Treasury yields go up further or if there is an increasing chance of a Fed put.

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.

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