Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Asian stocks experienced a rebound on Wednesday, largely driven by renewed optimism in artificial intelligence (AI) and semiconductor sectors, which invigorated China’s tech-led rally despite earlier losses on Wall Street. MSCI’s broadest index of Asia-Pacific shares outside Japan reversed an initial decline to register a 0.1% increase by mid-afternoon trading, indicating a shift in market sentiment.
China’s Tech Sector Leads Regional Gains
Chinese equities were at the forefront of the regional rally, with a key index of Hong Kong-listed companies climbing 1.5% and the STAR 50 Index seeing a significant 3.6% rise. Alibaba’s Hong Kong-listed shares notably surged by as much as 7.8% following the e-commerce giant’s announcement of its largest AI model to date, the Qwen3-Max.
UBS analysts noted that the upward trend for A-shares has intensified since August, with major indices surpassing their October 2024 highs. This momentum, they suggest, has created a “money-making effect” that is progressively drawing in investors who had previously remained on the sidelines.
Dollar Stabilizes Amid U.S. Market Dip
The U.S. dollar stabilized after two consecutive days of decline, with the dollar index increasing by 0.2%. Against the Japanese yen, the dollar also saw a 0.3% gain. Meanwhile, U.S. stock futures showed a 0.2% recovery after a dip on Wall Street, where the S&P 500 experienced its largest one-day loss in three weeks, falling 0.6%.
This decline followed remarks from Federal Reserve Chair Jerome Powell, who described equities as “fairly highly valued” and acknowledged the absence of a “risk-free path” for policy, according to DBS analysts. Powell’s comments did not commit to aggressive rate cuts, citing the challenge of balancing inflation risks with employment concerns.
Asian Stocks Near Four-Year High
Asian stocks are currently trading near a four-year high and are poised for their best monthly performance in a year. This positive trajectory is attributed to a weakening dollar, a surge in regional technology stocks, and expectations of a resumption in the Federal Reserve’s policy easing cycle.
However, Australian shares presented a notable drag on the Asian benchmark, falling 0.9%. This extended their losses after consumer prices in August rose more than expected. Capital Economics analysts suggested that while the Reserve Bank of Australia (RBA) might overlook the headline inflation pickup, the strength in core inflation would prompt consideration.
U.S. Rate Cut Bets and Economic Data
Japan’s Nikkei stock index reversed earlier declines to trade up 0.3%. Traders have increased their bets on further U.S. rate cuts, with Fed funds futures indicating a 91.9% probability of a rate cut at the central bank’s October meeting. This sentiment led to increased demand for longer-dated U.S. government bonds, causing the yield on benchmark 10-year Treasury notes to fall, alongside a decrease in the two-year yield.
Concerns about economic growth were fueled by recent U.S. economic data, as PMI figures indicated a slowdown in business activity for the second consecutive month in September. Citi analysts noted that while the S&P PMIs were softer, both remained within expansion territory. They highlighted that the composite output prices index fell to its lowest level since April, with firms reportedly struggling to pass on higher costs due to weak demand and increased competition.
Commodity Markets
In commodity markets, Brent crude oil saw a marginal increase of 0.1%, while gold prices were slightly higher.
Outlook
The Asian market’s resilience, particularly in China’s tech sector, underscores the region’s unique market dynamics, heavily influenced by domestic innovation and investor sentiment despite global economic headwinds. The interplay between U.S. monetary policy expectations and regional economic indicators continues to shape the trajectory of these markets.
