August began with higher reciprocal tariffs imposed by the U.S. on its trading partners. Notably, a 50% tariff on India that included a 25% penalty for purchasing Russian oil and weapons. Meanwhile, the U.S. and China extended a tariff truce for another 90 days to 10 November. Credit spreads narrowed further in August, indicating continued high investor risk appetite. Equity markets broadly advanced, reinforcing bullish sentiment amid strong earnings from technology driven firms. That said, investors are growing cautious about returns from technology and particularly, AI investments.
Economic data indicated a struggling Chinese economy with low factory output, weak retail sales, troubled property sector and high unemployment. This raises the likelihood of policy support in the fourth quarter; economists suggest monetary easing and fiscal expansion. Despite underwhelming economic data, the Chinese stock market stands at a stark contrast to the economy with the Shanghai Composite Index at a 10-year high. Additionally, the government announced their aim to triple chip output in 2026. The reluctance of household spending is evident in the size of savings worth more than 60% of the total value of the Chinese stock markets, leading analysts to believe that the rally is supported by long-term and institutional investors. Key drivers include the strategic deployment of state funds, inflows from global institutional investors—such as major U.S. financial institutions like Goldman Sachs and JPMorgan, as well as large Singapore-based funds—and increased participation by domestic mutual funds and insurers.
Looking ahead, we remain cautiously optimistic. While trade frictions, sticky inflation, and geopolitical tensions continue to weigh on sentiment, global activity remains resilient. Primarily driven by technology companies’ robust earnings, U.S. equities performed well, with S&P 500 and Nasdaq reaching record highs in August. Despite an initial pullback, markets have broadly rallied since, buoyed by expectations of two more rate cuts this year, moderating inflation, and resilient corporate earnings. Within Asia, institutional investors looking for diversification beyond U.S. assets are lured by China’s stock market bull run. Against this backdrop, we maintain a disciplined and balanced approach, grounded in bottom-up fundamental analysis in our portfolio construction.
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