Global investment in US equities is at historic highs, driven by positive momentum as the holiday season nears. Treasury yields have dropped following Scott Bessent’s Treasury Secretary nomination but worries over potential tariffs on China are making investors cautious, especially regarding Hong Kong equities.

In Asia, lower Treasury yields provide some relief, yet unexpected tariffs on Mexico are challenging Taiwanese firms, and US bans on HBM in China affect Korean semiconductors. The Adani scandal raises concerns in India, amid slowing growth, while Southeast Asian central banks are hesitant to cut rates due to US policy uncertainties. Geopolitical risks remain volatile, though OPEC+’s decision to maintain production levels may help stabilize oil prices. As uncertainty persists, income becomes a crucial return source for investors.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 30 November 2024

China / Hong Kong equities

• Global allocation to US equities has reached a historically high level despite high valuation. Positive momentum still dominates the market going into the holiday season. Treasury yields have declined after Scott Bessent was nominated as the next Treasury secretary. He has been an advocate for deficit reduction and deregulation. USD remains strong as economic growth in the US remains resilient.
• The concern of a heavy tariff on China has turned investors more cautious. As the rate cut becomes very uncertain for 2025, investors have a low appetite for Hong Kong equities, where most are rate sensitive. The weak RMB and record-low China bond yields have also pressured sentiment. Now, the market lacks direction and is waiting for the Politburo meeting next week.

China A-shares

• Investors will continue to focus more on China’s domestic sectors as they are expected to be stimulated by the government to offset the potential export drag from the expected higher tariffs.  Economic activities in China have picked up gradually in recent months, but deflation still persists, which continues to cause investors more on the sideline.  Also, the front loading of exports is the tailwind risk going into next year.

Asia ex-Japan equities

• The lower Treasury yields after the nomination of Scott Bessent as the Treasury secretary provided some breather for Asian equities.  However, the surprise tariff on Mexico from Trump has put pressure on some Taiwanese companies as they have factories in Mexico and may need to shift production in the future.  The US ban on HBM in China also pressured Korean semiconductors.  The Adani scandal has added to the concern of the Indian market, given that economic growth is slower than expected.  Southeast Asia is also hindered by the uncertainty of rate cuts in the US, so most central banks need to stay on hold even if their inflation is muted and needs a rate cut to support their economies.

Emerging market ex-Asia equities

• Geopolitical risks remain highly uncertain, although there is some temporary de-escalation in the Middle East.  OPEC+ decided to push the production hike to next year, which will help stabilize oil prices in the near term.  Lower Treasury yields also provided some breather.

Japanese equities

• With Ishiba staying as the Prime Minister of Japan, the market’s attention has now shifted to BOJ’s rate hike plan.  The market has now widely expected a rate hike in December, followed by another two times next year, as wage growth looks strong.  JPY has strengthened as a result.  On the other hand, company earnings remain healthy and there is indication that GPIF will increase Japanese equity allocation.  These different forces will make the market range bounded in the near term.

Asia investment grade bonds

• Lower Treasury yields after Scott Bessent’s nomination as Treasury secretary provided some breather for duration plays. However, the uncertainty of the Fed’s rate cut continues to hinder Asia’s investment grade bonds, given that credit spreads remain tight.

Asia high yield bonds

• The Adani scandal caused a correction in the expensive Indian high-yield bonds. There was some buy-on-dip, but overall, investors have become cautious given the tight spreads. There were some activities in the Chinese high-yield bond new issuance, which lightened some hope in the space.

Emerging market debt

• Spreads have been at tight levels below historical averages. With increasing uncertainties in the market, the outlook for emerging market bonds remains volatile. Also, the heightened geopolitical risks will continue to weigh

Gold

• Gold prices will likely continue to be range-bound in the near term after breaking their historical high. Given Trump’s expected deregulation, money has been flowing from gold to cryptocurrencies. On the other hand, central banks are still buying gold in their reserves to lower their dependence on USD.
• In the longer term, heightened geopolitical risks will continue to support the outlook of gold.  In addition to geopolitical worries, investors are concerned about the de-dollarization trend as BRIC countries are developing a new payment system, which will likely continue to support gold prices.

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.

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.}

^{This article has not been reviewed by the Securities and Futures Commission of Hong Kong. Issuer: Value Partners Hong Kong Limited.}