These reports are prepared by students for educational purposes only and do not constitute investment advice or a recommendation to buy or sell any securities.
Written by Jackie LUI Ching Ho, Tiffany ZHANG Difei and Vivien TAO Wei, 10/03/2026
Proofread by Justin CHUNG Lok Yin
Published by Louise Danielle SUGIARTO
After decades of unrivalled dominance as the global reserve and transaction currency, the dominance of the USD is facing unprecedented headwinds, with a growing number of nations and investors seeking alternatives amid shifting economic and geopolitical tides.
Fiscal concerns and geopolitical shifts in 2026 are causing capital to flow out of the US and flow into specific divergent regions. Mounting US budget and trade deficits, the use of USD-centric financial tools, and persistent inflationary pressures have eroded confidence in the dollar, driving capital reallocation toward regions with stronger fiscal fundamentals, lower geopolitical risk, or strategic de-dollarisation momentum.
The analysis suggests that a shift toward broader global diversification may be warranted as dollar dynamics evolve. As dollar strength wanes and regional economies and currencies diverge in performance, opportunities for alpha generation will increasingly lie in targeted exposure to high-potential regions, rather than broad USD-linked assets.
The erosion of confidence in the US dollar—once considered the global “safe haven” currency and deemed risk-free for years—stems from three interconnected, data-backed drivers: unsustainable fiscal imbalances, the use of financial infrastructure as policy tool, and persistent inflationary pressures that erode its real value. Each factor reinforces the others, accelerating capital outflows and fueling demand for alternative currencies and regions.
Budget and trade deficits have reached levels that threaten the dollar’s status as a reliable store of value. When a country spends more than it earns (budget deficit) and imports more than it exports (trade deficit), it must rely on foreign capital inflows to finance the gaps; over time, this increases supply of the currency and reduces its perceived stability. In 2026, the US budget deficit is projected to grow to $1.853 trillion (5.8% of GDP), up from $1.775 trillion in 2025, according to the Congressional Budget Office (CBO). Over the next decade, the deficit-to-GDP ratio is expected to average 6.1%, reaching 6.7% by 2036—far above policymakers’ targets for sustainable fiscal health. Publicly held US federal debt is set to hit 101% of GDP in 2026, and rise to 120% by 2036, driven primarily by a structural imbalance of tax cuts, rising mandatory spending from an ageing population, and mounting interest costs, exceeding the 1946 historical high of 106%.
The trade deficit, meanwhile, remains persistent. After narrowing in late 2025, the US trade deficit (net exports of goods and services) is forecast to stabilise at an annual rate of $341 billion in the first quarter of 2026, reflecting ongoing reliance on imported goods and weak export competitiveness relative to key trading partners such as Mexico and Canada. Some forecasts suggest the budget deficit could rise even further, approaching 7% of GDP in 2026 amid loose fiscal policy and efforts to boost domestic growth ahead of elections.
Over the past decade, all three major rating agencies have downgraded US Treasury debt from their top-tier ratings. Standard & Poor's first cut the US rating in 2011 following a debt ceiling standoff; Fitch followed in 2023, citing "a steady deterioration in standards of governance"; and Moody's completed the trifecta in May 2025, downgrading the US to Aa1. The agencies consistently point to the same rationales: dramatic increases in government debt, rising interest costs, persistent fiscal deficits, and political dysfunction that prevents corrective action.
While near-term market impact has been muted—the Treasury market's depth and safe-haven status absorbing the shocks—the downgrades signal a more critical long-term vulnerability: growing dependence on foreign investors to finance US deficits. As UBS has noted, the real risk is not an outright sell-off but a sustained reduction in new inflows, forcing higher borrowing costs. Together, these fiscal imbalances erode the dollar's safe-haven appeal. Global investors increasingly worry about future debt monetisation (printing money to service obligations) or currency devaluation, weakening the dollar's status as a reliable store of value.
The use of dollar‑denominated financial infrastructure as an instrument of foreign policy has generated a significant unintended market response, accelerating de‑dollarisation: leveraging the central role of the US dollar and the global dollar‑based settlement system for geopolitical purposes has signalled to countries worldwide that their dollar‑denominated reserves and access to core financial channels may be constrained by shifting political dynamics, prompting a range of nations and trading blocs to develop alternative cross‑border payment and settlement systems and accelerate the diversification of their official reserve portfolios as a defensive adjustment to concentration risk.
A currency’s real value is determined by its purchasing power, and persistent inflation in the US—higher than in key European and Asian economies—has eroded the dollar’s appeal relative to alternatives. This inflationary divergence is primarily driven by a combination of strong fiscal stimulus, the lagging effects of tariffs, and resilient domestic demand, all of which have proven stickier than the disinflationary trends observed elsewhere. When US inflation outpaces that of its trading partners, the dollar’s “real exchange rate” falls, meaning it buys fewer goods and services globally, reducing its attractiveness for investors and central banks.
US inflation remains sticky in 2026: the Consumer Price Index (CPI) for all urban consumers rose 2.4% year-over-year in January 2026, with core CPI (excluding food and energy) up 2.5%—above the Federal Reserve’s 2% target. Forecasters expect US CPI to average 3.2% in 2026, with PCE inflation (the Fed’s preferred gauge) at 2.9%, as loose fiscal policy and supply constraints keep price pressures elevated.
In contrast, inflation in the Eurozone is projected to moderate to 1.9% in 2026, according to the ECB’s Survey of Professional Forecasters—aligning with the European Central Bank’s 2% target, and the UK at 2.4%—all below US levels. In Asia, China’s CPI is forecast to rise moderately to 0.8% in 2026, while Japan’s inflation remains elevated but is driven by domestic demand rather than external pressures.
This inflation gap means the dollar’s real value is declining relative to the euro, yuan, and other major currencies. The real-world impact became starkly evident in 2025: while the S&P 500 gained more than 10% in dollar terms, European investors saw those returns nearly vanish after currency losses, ending with low-single-digit returns once the dollar's depreciation against the euro was factored in. This phenomenon was not isolated—MSCI data showed that through August 2025, dollar-based returns for U.S. equities turned into a 2% loss for euro-based investors after accounting for currency moves, despite the index hitting all-time highs in dollar terms. Bridgewater's Ray Dalio highlighted the broader pattern: the S&P 500's 18% dollar return translated to just 4% for euro investors and 3% for Swiss franc investors, as the dollar weakened 12% against the euro and 13% against the Swiss franc. For global investors, this reduces the allure of USD-denominated assets, as returns are eroded by higher inflation—further accelerating capital flows to regions with lower inflation and more stable purchasing power.
Capital is being actively pushed out of the United States by three structural pressures. Each corresponds to a different class of capital holder, and together they explain why the outflow is a systemic shift rather than a series of isolated events. What follows traces these pressures back to the fiscal and inflationary vulnerabilities discussed earlier, showing how macro fundamentals translate into tangible portfolio decisions.
Over the past decade, all three major rating agencies have downgraded US sovereign debt, with Fitch explicitly citing "deterioration in governance." For reserve managers, this creates an unavoidable mandate to diversify—the move away from single-currency dependence is no longer just a policy preference, but a risk-management necessity. The projected $1.85 trillion deficit for 2026 means a significant wave of new Treasury supply entering a market where the pool of willing buyers is shrinking. This supply-demand imbalance is fundamental: when the largest issuer of "safe assets" increases supply while its credit outlook weakens, the natural response of global managers is to limit exposure.
The dollar's reserve decline has been steady: from nearly 70% in 2000 to around 57.8% as of Q3 2025. Each percentage point represents tens of billions in reallocated reserves.
Beyond the sheer volume of debt, there is geopolitics. The 2022 restriction of Russian assets sent a clear signal: dollar assets can be rendered inaccessible amid heightened geopolitical tensions. As a result, many reserve managers have begun to view concentrated holdings of US Treasuries through a geopolitical risk lens. This perception has introduced a new variable into the diversification calculus, accelerating a gradual, yet persistent, shift away from the dollar. The key point isn't only where the money is going—though gold and some alternative currencies have benefited—but what it is seeking to avoid: assets perceived as vulnerable to the instruments of statecraft. Gold accumulation by China and India reflects this logic—policymakers are seeking assets entirely outside the US financial orbit, insulated from any single government's policy decisions.
If central banks are geopolitically driven, private investors are pushed by the arithmetic of real returns. With US CPI projected around 3.2% in 2026, holding nominal dollar assets means accepting a guaranteed loss of purchasing power. The inflation gap is eating into returns.
For institutional allocators, the concern is not default but dilution. In an environment of persistent deficit financing, holding cash or nominal dollar bonds means accepting a slow but predictable decline in purchasing power. This logic is visible in gold: over the past two and a half years, gold has climbed from $1,950 to over $5120. This is not just short-term volatility—it is a confirmation of the dollar’s declining share as a reliable store of value. Investors are rotating out of dollars and into assets with fixed supply curves, seeking protection against future money creation.
Capital is rotating into regions capable of capturing structural growth outside the US economic cycle. This divergence is driven by regional strengths in domestic consumption, high-tech industry and fiscal adjustments.
India has emerged as a top destination for capital seeking alternatives to US-centric portfolios in recent years. After tightening monetary and fiscal policy in late 2024 to prevent overheating, India's economy has maintained a real GDP growth rate of more than 7%, making it the world's fastest-growing major economy. However, India experienced net capital outflows and did not fully capture the capital outflows from the US in 2025.
Despite strong fundamentals, the Indian rupee (INR) depreciated by about 5.4% against the USD between April 2025 and January 2026 due to the 50% US tariffs on Indian exports in August 2025. Besides US tariffs, large foreign portfolio outflows, rising bullion imports and corporate anxiety over the rupee's fortunes kept INR under pressure. However, Foreign Direct Investment (FDI) has remained strong, with gross inflows totalling $64.7 billion from April to November 2025, driven by supply-chain diversification and the growth of the digital economy.
A softening USD is serving as a driver for Indian asset performance. Investment banks forecast that the rupee will strengthen from 90 at the beginning of 2026 to 86 per USD by the end of 2026, as global trade stabilises. Some have upgraded Indian equities to "Overweight" because they see the area as a main beneficiary of a weaker US dollar.
Taiwan and South Korea remain essential manufacturing hubs for the global AI cycle. Because of the concentration of advanced semiconductor capabilities, these locations have become the principal receivers of global technological capital.
Taiwan's provisional 2025 real GDP growth rate was 8.63%, boosted by a record trade surplus of $157.1 billion. One of the key drivers of the growth, Taiwan Semiconductor Manufacturing Company (TSMC) has reinforced its position, with its market share expected to reach a remarkable 70.2% by 2025. In early 2025, technology products comprised over 65% of the total export value, with semiconductors accounting for 42%. Approved FDI inflows to Taiwan totaled $11.39 billion in 2025, an approximately 45% increase, reflecting significant capital expenditure in chip manufacturing. TSMC's development of its 3nm and 2nm nodes are considered systemically important in the global technology industry. The 45% increase in FDI represents hyperscalers' (Nvidia, Apple, Google) pre-funding capacity to secure future chip supply amidst a structural shortage.
In 2025, the South Korean equities market rose 76% year on year, boosted by rising memory demand. Samsung Electronics and SK Hynix have greatly outperformed worldwide peers as a shortage of memory chips emerged due to the global data centre development. This is predicted to result in a sectoral profit increase of 78.8% by 2026. South Korea recorded its largest annual current account surplus in 2025, at $123.05 billion. This surplus was largely driven by a 21.9% increase in semiconductor exports, which totalled $175.3 billion. The transition from general-purpose servers to Agentic AI has resulted in a Memory Supercycle. Samsung and SK Hynix are reporting record earnings because AI demands High Bandwidth Memory, which has much better margins than standard DRAM.
The New Taiwan Dollar (TWD) has encountered appreciation pressure as a result of the high amount of export revenues and foreign currency financing requirements for AI-related supply chains. While the Korean Won (KRW) traded at approximately 1,500 against the US dollar, the immediate impact on consumer inflation was restricted by the Bank of Korea's (BoK) hawkishness and the country's steady current account surpluses. The Bank of Korea is likely to gradually boost interest rates in 2026, further decreasing the rate divergence with the US and strengthening the won's performance against other major currencies. AI-driven growth in North Asia has challenged the dollar's position as the principal benefactor of technology investment. Capital has shifted away from US IT giants and toward providers, whose valuations are considered more appealing when compared to their forward earnings potential in 2025.
As the globe recovers from the turbulence of 2025, Japan has established itself as a key destination for global institutional and retail money, rather than a peripheral hedge.
The Bank of Japan's exit from negative interest rate policy in 2024 was an introduction to the systematic normalisation that occurred in 2025 and 2026. This shift marks the most dramatic divergence from the previous three decades' deflationary stagnation, creating a healthy market for capital inflows that are structurally distinct from the speculative "yen carry trades" of the past. By December 2025, the Bank of Japan (BoJ) had raised its policy rate to 0.75%, signalling to global markets that Japan was no longer the world's source of "free" liquidity.
The year 2026 represents the New Phase of Japanese equity. Since the second quarter of 2025, Japan has had a net inflow of around 13.5 trillion yen from overseas investors, driving the TOPIX to rise 22.41% and the Nikkei 225 to rise 26.18% in 2025. The fundamental driver of these inflows is the ongoing corporate governance reform. For decades, Japanese companies were undervalued relative to peers because they hoarded capital and ignored shareholder returns. However, the Corporate Governance Code's 2026 modification has established an efficient culture, including the principle-based "comply or explain" structure and establishes a strong mandate for strategic capital allocation.
Since mid-2025, the yen-dollar relationship has been increasingly detached from traditional interest rate differentials, with the yen rising slightly against the dollar as market players factor in US fiscal sustainability and potential shifts toward a weaker-dollar policy strategy. Due to the Japanese government’s projection of its first primary budget surplus in 28 years and the BoJ's steady move toward a 1.00% policy rate, it provides a stable alternative to the Federal Reserve's easing cycle
China's economic story for 2025-2026 is defined by resilience in the face of domestic and external changes. Real GDP growth rose more than 5.0% in 2025, but it is expected to slow to 4.5% in 2026 as demographic trends affect productivity.
On May 20, 2025, the People's Bank of China (PBOC) reduced the one-year Loan Prime Rate (LPR) by 10 basis points, from 3.1% to 3.0%. Concurrently, the five-year rate was reduced from 3.6% to 3.5%. This adjustment follows a more significant 25-basis-point drop to both LPRs in October 2024, demonstrating the central bank's continued efforts to reduce borrowing costs and encourage economic growth. The financial account deficit reached 3.9% of GDP, driven by portfolio outflows and resident purchases of foreign assets, while FDI remained at 0.3% of GDP. The renminbi (RMB) has risen to become the second-largest currency for trade finance, accounting for 6.34% of worldwide transactions in early 2025. As market volatility cooled down, the RMB rose 4.4% against the US dollar. The 10-year China Government Bond yield has stabilised at 1.8%-1.9%, creating a demand for RMB-denominated fixed income as a diversification strategy.
PBOC has expressed a firm commitment to a moderately loose monetary policy in 2026, with the central bank governor indicating more room for the reserve requirement ratio (RRR) and interest rate decreases. This strategy intends to stabilise growth and encourage a price recovery, with a target GDP growth rate of 4.5% to 5% for 2026. UBS suggested that China will cut interest rates by 10-20bps in 2026. In addition, the movement toward currency diversification has gained momentum as China builds its own payment infrastructure (CIPS). Institutional investors are increasingly using RMB assets to support current account rebalancing, especially as US fiscal concerns trigger outflows from dollar-denominated debt. The 2024 survey results show the upward trend of foreign holdings of Chinese assets. When asked about the proportion of Chinese stocks in their entire stock portfolios, 32%, 22%, and 7% of financial institutions (FIs) indicated allocating Chinese stocks between 21-40%, 41-60%, and 61-80%, 2, 4, and 4% higher than last year's results, respectively. The percentage of respondents allocating less than 20% declined from 49% in 2023 to 41% in 2024. A similar tendency appears in China's bond allocations. In 2024, 36%, 18%, and 6% of Fls reported allocating China bonds at 21-40%, 41-60%, and 61-80% respectively, 2, 5, and 3% higher than last year's results, respectively. The proportion of responders allocating less than 20% fell from 49% in 2023 to 39% in 2024. These activities would likely support RMB internationalisation and growth.
The Eurozone's economic story has changed drastically, from structural manufacturing challenges to one of dedicated fiscal activism. The euro (EUR) performed remarkably well in 2025, rising 15% against the US dollar, the largest gain in the G10, supported by expectations that Europe's fiscal and strategic shifts would boost growth in the following years.
The most notable development in the region is Germany's fiscal policy. Germany authorised a €500 billion infrastructure fund and a record €58.3 billion investment allocation in its 2026 budget, with government investment expected to expand by 20% year on year. This investment covers a wide range of programs, including defence, transportation infrastructure, and industrial support measures, with the goal of narrowing the growth gap with the US. For industrial stakeholders, this policy support reduces long-term operational risks while also providing a valuation cushion for European equities.
Furthermore, the record-breaking inflow into UCITS (standardised European investment funds) will shape the Eurozone's capital market by 2025. Net inflows totalled EUR 873 billion, showing a normalisation of European equity valuations. Furthermore, demand for Eurozone sovereign debt has risen, particularly for German, Italian, and Spanish bonds. The Euro is increasingly being used as a reserve currency, with non-European countries issuing more than €1 trillion by 2025.
As the relative attractiveness of US Treasuries swings, global capital shifts to euro-denominated debt. The euro is emerging as a credible alternative to institutional reserves, supported by a narrowing interest rate differential as the Federal Reserve decreases rates while the European Central Bank (ECB) keeps rates at 2.0% in early 2026. European safe assets issued by the European Union (EU), the European Investment Bank (EIB), and the ESM/EFSF rose from €1.2 trillion in 2024 to over €1.4 trillion in 2025, making them the fifth largest market segment in the eurozone. The growing volume of safe assets in Europe illustrates that global investors are shifting from safe US Treasuries to alternatives such as European safe assets.
The previous sections have documented how capital is already rotating out of the US into specific regions and assets. The question for investors is not whether this trend exists, but how it will evolve. Looking ahead, three themes stand out: the structural demand for debt-free safe havens, the continued rise of Indo-Pacific domestic demand, and the one variable that could upend everything—the advent of Artificial General Intelligence.
With the US deficit becoming a permanent fixture of investor psychology, the definition of a "safe haven" is evolving. Traditionally, safety meant US Treasuries. Going forward, for a growing cohort of global wealth managers, safety will be defined by freedom from sovereign credit risk and monetary dilution.
This is where gold enters the picture. Unlike fiat currencies—which remain subject to central bank policy and fiscal politics—gold sits entirely outside the financial system. It has no counterparty risk, no government backing, and no supply response to fiscal crises. When investors worry about a future where the US might need to inflate away its $36 trillion debt burden, gold offers a store of value that cannot be printed, frozen, or devalued by policy makers.
Gold Price Forecasts shows a projection based on real interest rate expectations and central bank demand trends. The key takeaway is not the precise price target, but the direction: as long as US fiscal deficits remain elevated and real yields remain suppressed, the structural case for gold as a portfolio hedge strengthens.
There is one massive outlier that could flip this entire narrative: Artificial General Intelligence. At the 2026 AI Impact Summit, Demis Hassabis noted that AGI could trigger a productivity leap far outpacing the Industrial Revolution.
The US currently sits at the centre of this revolution. From foundational AI systems, to the concentration of top-tier research talent, to the venture capital flows that fund it all, the US tech corridor remains the most probable epicentre of an AGI breakthrough. This is not to dismiss advances elsewhere, but to acknowledge where the centre of gravity currently lies.
If the US tech corridor crosses the AGI finish line first, the global capital flow dynamic could reverse overnight. A productivity explosion of that magnitude would be the ultimate "risk-on" signal. Global capital, regardless of its concerns about US fiscal policy, would be forced back into US equities to gain exposure to this unprecedented growth. The sheer economic and corporate profit growth generated by a US-led AGI breakthrough could temporarily overwhelm—or at least mask—the US debt crisis, engineering a "Super Dollar" backed by technological supremacy.
But this is only one possible path. In a more gradual scenario where AGI advances are distributed across the US, China, and Europe, the current trends of fiscal concerns and geopolitical fragmentation would likely persist. Capital would continue its gradual diversification away from the USD into regional champions and hard assets, and the multi-polar reality described throughout this report would remain intact.
Written by Diana LIU Haolin, Adrian PING An, Lucy ZHOU Zihan, 02/03/2026
Proofread by Charles SHI Qiyuan
Published by Nicholas FEDLIM
The resurgence of global inflation in the post-pandemic era is driven by multiple factors, notably supply chain disruptions and expansionary monetary policies. However, recent economic analyses suggest that labor market dynamics, specifically those influenced by restrictive immigration policies in major economies, play a significant role (Peri & Zaiour, 2022). While immigration policy involves a range of social, political, and security considerations beyond the scope of this article, this analysis focuses specifically on the macroeconomic and financial transmission channels.
Over the past decade, immigration restrictions in the UK and the US constrained labor supply elasticity, contributing to the persistence of core inflation within these nations. Through mechanisms involving currency appreciation and capital flow volatility, these domestic policy choices can transmit inflationary pressures and financial tightening to the broader global economy (Gopinath et al., 2020).
To understand the global implications of labor shortages in major advanced economies, it is necessary to establish a transmission mechanism connecting labor economics with international finance. At the domestic level, immigration restrictions function as an exogenous negative supply shock, shifting the Long-Run Aggregate Supply (LRAS) curve to the left (Summers, 2022). In an environment where aggregate demand is stable or recovering, this contraction of potential output creates structural upward pressure on the price level.
This supply-side constraint is fundamentally driven by a decline in the labor market's matching efficiency. Restrictive immigration policies shrink the pool of available workers with specific skills or geographic mobility, making it increasingly difficult for firms to fill vacancies. In economic terms, this causes an outward shift of the Beveridge Curve: for any given level of unemployment, the job vacancy rate remains abnormally high. As matching efficiency falls—meaning businesses face greater friction in finding suitable workers—firms are forced to raise nominal wages to attract scarce labor. This triggers a Wage-Price Spiral, particularly in the labor-intensive service sector, where costs are quickly passed to consumers. The result is "sticky" service inflation that remains resistant to standard interest rate adjustments (Federal Reserve Bank of Kansas City, 2022).
The propagation of this domestic inflation to the global stage is further explained by the Mundell-Fleming Model and the Dominant Currency Paradigm (Gopinath et al., 2020). When a major currency issuer (like the US or UK) faces persistent inflation due to labor constraints, its central bank typically responds with aggressive interest rate hikes. This widens the interest rate differential, attracting global capital and causing the domestic currency to appreciate. Given that global commodities and trade invoicing are heavily concentrated in these dominant currencies, a stronger dollar or pound effectively transmits imported inflation to trading partners -- a phenomenon known as the exchange rate pass-through.
This mechanism leads to a period of policy synchronization, where other central banks are compelled to mirror these restrictive hikes to mitigate capital flight and defend their own currencies against depreciation. This collective movement triggers a sharp reduction in global market liquidity as the cost of borrowing rises simultaneously across borders. Emerging markets are particularly vulnerable to this shift; the combination of a stronger USD and higher global yields often leads to sudden capital reversals, increased debt-servicing costs for dollar-denominated obligations, and a contraction in industrial output. Consequently, a localized labor supply shock in a core economy can transform into a synchronized tightening of global financial conditions, weighing heavily on global growth and financial stability (IMF, 2023).
Over the past decade, the United States provides a case study of how domestic labor shortages can precipitate a global tightening cycle due to the dollar's dominance in the international financial system.
Labor market tightening in the U.S. began well before the pandemic, marked by a structural shift in labor mobility. Net international migration (NIM) levels began to decline from prior averages, falling from approximately 1,047,000 in 2016 to roughly 595,000 in 2019—a 43% decrease (CBO, 2024). This decline was driven by increased administrative friction, such as the "Buy American, Hire American" executive order, which saw H-1B visa denial rates for initial employment jump from 6% in 2015 to 24% by 2019 (NFAP, 2019). Proponents of these measures argued they were necessary to protect domestic wages and employment opportunities, though the net macroeconomic effects remain debated. This pre-pandemic erosion of labor market "slack" reduced the elasticity of supply and steepened the Phillips Curve, priming the economy for future wage sensitivity even before the COVID-19 shock (Peri & Zaiour, 2022).
The acute shock occurred with pandemic-related border closures and the application of Title 42, which brought net migration to near-zero levels. As the economy reopened in 2021, the Kansas City Fed estimated a structural shortfall of approximately 2 million workers, largely attributed to this prolonged halt in immigration (Federal Reserve Bank of Kansas City, 2022). This shortfall fueled a rapid wage-price increase, particularly in the leisure and hospitality sectors, contributing to CPI peaking at 9.1% in June 2022 (BLS, 2022). In response to this structural pressure, the Federal Reserve executed a series of aggressive rate hikes, including consecutive increases of 75 basis points. This domestic reaction triggered significant global spillovers via the Strong Dollar Channel; as the US Dollar Index (DXY) reached multi-decade highs, nations dependent on dollar-denominated imports faced escalating costs, effectively synchronizing a global tightening cycle (IMF, 2023).
In the subsequent period, administrative processing accelerated. The Congressional Budget Office (CBO) estimated a net immigration surge of 3.3 million in 2023 (CBO, 2024, p. 20). This influx was pivotal not only in filling low-skill vacancies but also in facilitating structural adjustments across high-demand sectors like healthcare and manufacturing. In healthcare, foreign-born professionals helped mitigate severe staffing shortages in nursing and elder care, while in manufacturing, the return of skilled labor stabilized production lines (American Immigration Council, 2024). This expansion of labor supply allowed the U.S. to achieve strong GDP growth alongside falling inflation ("disinflation"), alleviating pressure on the dollar and stabilizing global interest rate expectations.
In contrast to the cyclical fluctuation seen in the US -- where immigration rebounded sharply to alleviate supply pressures -- the UK experience illustrates the impact of structural changes to labor mobility on regional supply chains and inflation persistence. This contrast reinforces the central thesis that the nature of the labor shock (cyclical vs. structural) significantly influences its economic consequences and transmission mechanisms.
Following the decision to exit the European Union and end "Freedom of Movement," the UK economy faced a period of structural adjustment. The ending of "Freedom of Movement" sharply reduced EU-origin labor inflows, particularly in low-wage sectors (Migration Observatory, 2022). The policy shift reflected broader public priorities around sovereignty and border control, though it introduced new frictions into the labour market. The initial depreciation of the Sterling raised import costs, while business investment slowed amid heightened uncertainty (ECB, 2023). More significantly, the net inflow of EU nationals—a key source of labor elasticity—diminished, setting the stage for a persistently tight labor market (Oxford Review of Economic Policy, 2022).
The shift of the Points-Based System in January 2021 restricted the entry of workers for lower-paid roles (Migration Observatory, 2022). This policy shift coincided with a recovery in demand, leading to acute shortages in specific sectors, most notably the Heavy Goods Vehicle (HGV) driver crisis. The resulting logistics bottlenecks drove significant cost-push inflation, with UK CPI peaking at 11.1%, the highest among G7 nations (ONS, 2022).
This impact was magnified by the UK economy's heavy reliance on labor-intensive service sectors. Sectors such as healthcare, social care, and hospitality, which have a high proportion of EU-born workers, faced extreme staffing shortages (Independent Report for the MAC, 2023). Unable to fill vacancies, firms in these sectors were compelled to offer significant wage increases to attract and retain staff. This wage pressure proved particularly "sticky" because it was driven by a structural labor scarcity rather than cyclical demand. Consequently, these labor-intensive sectors became primary drivers of persistent domestic services inflation, which proved less responsive to initial interest rate adjustments by the Bank of England.
Regionally, this generated spillover effects. As a key logistics node, disruptions in UK transport efficiency affected supply chains between Ireland and Continental Europe, contributing to higher regional logistics costs (CNBC, 2021). The persistence of inflation in the UK also signaled a "de-anchoring" of expectations -- a situation where the public begins to expect that inflation will remain above the central bank's target, influencing regional bond yields. This vulnerability arose because the supply-driven nature of the inflation (stemming from labor shortages) was less directly addressable by monetary tightening alone, potentially reducing the perceived effectiveness of the Bank's policy.
Despite economic headwinds, policy remained restrictive, with the baseline minimum salary threshold for the Skilled Worker visa increasing to £38,700 in April 2024 (House of Commons Library, 2024). The UK's core inflation has remained comparatively sticky, necessitating a "Higher for Longer" interest rate stance from the Bank of England (Bank of England, 2024). This divergence has implications for financial stability, aligning with the international transmission framework introduced earlier. The UK's persistent inflation and the associated "Higher for Longer" rate path directly influence the Gilt market. As a benchmark for global fixed-income pricing, instability in the Gilt market can trigger repricing across global sovereign bond markets. For instance, the sharp rise in Gilt yields during the 2022 market turmoil was not an isolated event; it prompted a broader reassessment of risk in other advanced-economy bond markets, leading to capital outflows and increased borrowing costs internationally (BIS, 2022). Thus, a structurally induced labor shortage in the UK can, via its sovereign debt market, transmit financial tightening signals to the global economy.
This analysis highlights that immigration policies in major economies like the US and UK act as potent macroeconomic variables with cross-border implications.
Looking forward, these findings suggest that immigration policy dynamics are an underappreciated variable in macroeconomic and financial stability analysis and deserve closer attention from market participants. For major economies, a clear trade-off exists between restrictive policies and inflation control. For emerging markets, this creates vulnerability: labor mobility decisions in core economies can trigger volatile capital flows and tighter financial conditions abroad. Future governance requires greater recognition of labor mobility’s role in price stability and a more coordinated approach to managing supply-driven spillovers.
Written by: Vicky HUANG Lihan, Ling GUO Yuling, 17/02/2026
Published by Arya RAJESH
This article reviews 2025 market conditions and assesses the sustainability of this recovery into 2026 and its key policy implications. Mixed performances across subsectors are observed. The private residential sale price index as of October 2025 rose by 1-2% year-over-year, partly reversing the cumulative 15-20% decline since 2022, while the rental index returned to low-to-mid single-digit growth, supporting stable landlord returns. Commercial real estate performance was mixed, but improving, though Grade-A offices still faced high vacancies. Retail benefited from tourism's return, and modern logistics assets outperformed, with large investment deals above HKD 100 million totalling about HKD 39 billion, a 12% increase. In 2025, Hong Kong's real estate market showed signs of stabilisation, with transaction volume leading a broad recovery across residential, commercial, industrial, and retail sectors.
In 2025, the Hong Kong residential market operates under peaking-then-declining interest rates and increased housing supply, leading to a recovery in transaction activity but only moderate price growth. Market forecasts generally suggest that residential transactions may reach around 60,000 units or above for the year, while overall prices are expected to remain in a low single-digit growth range of roughly 0-5%, reflecting improved sentiment but limited room for a sharp rebound under high inventory and external uncertainties.
The summer of 2025 saw extraordinary HIBOR volatility driven by currency-peg mechanics. The April 2025 US reciprocal tariff announcements triggered widespread US dollar weakness, with the DXY plunging from January peaks of 110 to lows near 97.9. As the HKD surged to the strong side of its peg, the HKMA sold HK$129 billion in exchange for USD, leading to a surge in banking system liquidity and a collapse in interbank rates, with overnight HIBOR falling from over 4% to near zero within weeks. Notably, 1M HIBOR plunged from 4% in early May to below 1% within a month, as the aggregate balance rose from HK$44 billion to HK$174 billion. This dramatic fall created a massive interest rate differential with USD rates. The one-month SOFR-HIBOR spread expanded beyond 370 basis points, which in turn incentivised carry trades (borrowing cheap HKD to invest in higher-yielding USD assets). The wide gap from May triggered carry trades that pushed the Hong Kong dollar to the weak end of its peg and triggered further HKMA interventions, this time draining liquidity. The overnight rate rebounded sharply to 2.9% by mid-August, and the one-month HIBOR surged from approximately 0.9% to 2.6% within a week. By late 2025, the aggregate balance had stabilised at HK$50–80 billion after the HKMA drained roughly HK$120 billion in August, bringing the fluctuations to a close and leaving rates in a more normalised range heading into 2026.
By late 2025, declining interest rates materially altered the cost-of-ownership equation. One-month HIBOR stabilised below 3%, while prime lending rates also edged lower. In certain submarkets, monthly mortgage payments declined to levels below comparable rental costs, creating a positive ownership-rental cost spread. This shift provided fundamental support for price stabilisation and laid the groundwork for potential upside in 2026.
Long-term growth expectations continued to be shaped by infrastructure-led development, particularly within the Northern Metropolis. The 2024 Long Term Housing Strategy progress report sets a 2025/26-2034/35 overall housing supply target of 440,000 units, about 308,000 public and 132,000 private, backed by identified land resources.
Government policy in 2025 placed a stronger emphasis on area-based planning and innovative land development models. The Northern Metropolis, located in the northern New Territories along the Shenzhen River, is being developed as a roughly 30,000-hectare strategic growth area to provide substantial additional residential and commercial land and to strengthen transport links with the core business districts of Hong Kong and Shenzhen. Flagship projects such as the San Tin Technopole are expected to enhance Hong Kong's technology and innovation ecosystem, while ongoing transport infrastructure investments are improving regional connectivity. Together, these initiatives are strengthening the long-term land value and development potential of the New Territories.
Investment activity in 2025 was marked by a small number of sizeable transactions amid generally cautious market sentiment. While deals exceeding HKD 100 million remained limited in count, the total value of large transactions rose by approximately 12% year-on-year to around HKD 39 billion. Market participation was largely driven by domestic capital and institutional investors, with professional buyers dominating transaction activity. Investor preference remained skewed toward assets offering stable income visibility and long-term value preservation rather than speculative upside.
In 2025, Hong Kong's residential property market saw a clear rebound in transaction activity, a development that preceded stabilisation in prices. Preliminary data show that total residential sale and purchase agreement registrations reached about 62,000 units in 2025, up approximately 17% compared with 2024. This increase reflects a meaningful return of market participation after several years of subdued activity.
The primary market was especially strong. Over 20,000 first-hand private residential units were registered, representing an almost 20% year-on-year increase-the highest level since the First-hand Residential Properties Sales Ordinance came into effect in 2013. A key factor was developers' pricing approach: new launches were typically offered at 10% - 15% discounts relative to nearby secondary prices, a strategy that helped convert dormant buyer interest into actual transactions. About 52% of primary sales were "tail units" from earlier project phases. This indicates that a significant portion of long-standing inventory was absorbed, leaving unsold stock at its lowest level in over two years.
The secondary market also regained traction. Despite competition from discounted new launches, secondary transactions were close to 44,900 units for the year, returning to a level consistent with the previous five-year average. The removal of market-cooling measures supported this rebound.
After bottoming out in the first half of the year, residential prices gradually strengthened. The Rating and Valuation Department's private residential price index rose to 297.3 points by November 2025, representing an approximately 2.8% increase for the year and marking the end of three consecutive years of price declines.
The recovery, however, was uneven across segments. Smaller units recorded only modest price movements, while mid-sized units (70-99.9 sq m) outperformed, reflecting stronger end-user demand and improved affordability relative to larger luxury units.
The rental market significantly outperformed the sales market. The private residential rental index reached a record high of 200.7 points in November 2025, with rents rising over 4% year-on-year. This divergence between moderate price growth and robust rental growth highlights a structural shift in housing demand. Inflows of non-local professionals and students continued to support rental absorption, while some potential buyers deferred purchase decisions amid lingering interest rate uncertainty.
Rental yields in Hong Kong in June 2025 rose to their highest level in more than 13 years, fuelled by strong leasing demand from mainland Chinese students. The Centaline Rental Index Yields rose for a second consecutive month to 3.56% in June, the highest since November 2011. Average gross rental yield stood at 3.9% in Q2 2025, up from 3.88% in Q4 2024, 3.52% in Q3 2024, 3.54% in Q2 2024, and 3.39% in Q1 2024. This demonstrates a steady upward march reflecting rents outpacing capital values. This widening was stark in absolute terms: home values remained around 25% lower than the peak in 2021, while the rental price index rose to the highest since records began in 1993.
The widening gap between rental growth and price appreciation has enhanced the investment attractiveness of residential assets, particularly from a yield perspective. In several submarkets, rental yields stabilised or improved as rents rose faster than capital values, narrowing the yield gap relative to financing costs. This dynamic encouraged investor participation in selected segments, especially income-focused strategies.
Regionally, pricing dispersion became more evident. Well-connected mass-market areas and selected New Territories locations appeared relatively underpriced, supported by improving infrastructure and resilient rental demand. In contrast, prime luxury districts remained comparatively expensive on a price-to-rent basis, with slower recovery momentum reflecting more discretionary demand. One possible explanation could be the robust demand from incoming skilled professionals and a surge in non-local students, especially in neighbourhoods near universities. Average rents near HKU escalated to HK$65 per square foot, with small apartments (~215 sq ft) renting for as much as HK$13,000 per month. In September, some housing estates near universities gained rental returns of more than 4.5%. For example, Garfield Garden in Kennedy Town saw a rental yield of 4.68%, recording a 100 bps premium above the average yield.
Overall, the market entered a phase of selective repricing rather than broad-based recovery, reinforcing a more disciplined and fundamentals-driven investment environment.
The Grade-A office market continued to contend with high vacancy, with citywide rates hovering between 17% and 20%. However, a distinct divergence emerged in the second half of the year. While decentralised districts struggled, core districts, particularly Central, showed improving fundamentals. Central recorded modest rental growth and solid net absorption, driven by a flight to quality. Occupiers capitalised on the narrowed rent gap between prime and secondary buildings to upgrade their workspaces. For example, The Henderson by Henderson Land became a primary beneficiary of this trend. In a marquee deal, US quantitative trading firm Jane Street leased approximately 223,000 square feet (across six floors), signifying strong demand from high-value financial tenants. Other premium tenants like Christie's and Carlyle also anchored their presence here, reinforcing Central's status as the premier hub for wealth management and luxury auctions.
Traditional financial anchors like HSBC and other major banks maintained their strategic strongholds in the Core Central district (e.g., opening what HSBC described as the world's tallest wealth management office), providing a floor for occupancy rates. The expansion of Mainland Chinese financial institutions and returning hedge funds further supported rental levels in these prime assets.
Retail investment activity in 2025 remained selective, with capital concentrated in prime assets and clear differentiation in pricing. Core retail properties generally traded at net yields of around 2.5%-3.0%, while non-core assets required yields of 4.0% or above, reflecting a continued flight to quality. Notable market transactions, including HKD 1-1.5 billion acquisitions by long-term local capital, demonstrated sustained demand for scarce, income-secure retail assets despite a still-fragile leasing recovery. Leasing fundamentals improved modestly alongside the rebound in tourism, with prime rents recording low single-digit quarter-on-quarter growth and vacancy rates trending lower. In contrast, the food and beverage segment remained under pressure, prompting landlords to rely on rental concessions and flexible lease structures.
Industrial property displayed resilience, but with notable internal variation. Traditional warehouse space faced higher vacancy, reaching around 13% as export activity fluctuated. At the same time, demand for modern logistics facilities, particularly those supporting e-commerce and cold-chain operations, remained relatively strong. Noteworthy transactions included owner-occupier purchases of industrial properties, and rents for advanced logistics space held up better than the overall market average.
Hong Kong's residential market enters 2026 with a broadly improving backdrop: most major consultancies now expect prices to have bottomed out, with mainstream home values projected to rise by around 3-8% and annual transactions to stay above 60,000 units as buying interest gradually normalises. While external risks around global growth, US rate-cut timing, mainland China's recovery, and geopolitics still warrant attention, the balance of opinion has shifted towards a measured recovery scenario in which lower interest rates, returning mainland demand, and a more supportive policy stance on affordability and land supply together foster a more stable, healthier housing market over the medium term. While the residential market is expected to stabilize, demand for Grade-A offices remains subdued amid ongoing relocations and supply overhangs.
Written by: Emilie POU Ho Yuet, Mabel LOK Ka Ying, 08/02/2026
Published by Ashley LEE Juyeon
Major developed markets, especially the United States, lowered their interest rates in the short- and intermediate-term segments while increasing rates in the long-term segments during the first quarter of 2025. In March, Germany’s parliament approved the loosening of borrowing limits and exemptions for defense and security costs from its fiscal rules. A €500 billion infrastructure fund was created to spread over 12 years, resulting in Germany’s bond yield recording the largest jump since 1990, which also raised yields in the Eurozone.
In early April 2025, the U.S. administration announced a broad package of new import tariffs, which surged recession fears that declined after negotiations were encouraged. Around the same period, Moody's downgraded the US sovereign rating from Aaa to Aa1, citing concerns over the government's fiscal trajectory. This downgrade induced worries about financing the US government's budget deficit and US debt sustainability, causing bond yields in the US to surge to their quarterly peak. In general, long- term government bond yields steepened around the world in 2025 Q2. With fears of recession and US debt sustainability, US Treasury yields reached their peak in the quarter, with the 10-Year Treasury Yield standing high at 4.2%. Yields on Japanese and Canadian government bonds spiked due to concerns over fiscal stimulus and uncertainty regarding US trade, respectively. Both the Bank of England and the European Central Bank cut interest rates, helping the former achieve strong performance among sovereigns in the quarter, with UK Government Bonds (Gilts) yielding 4.5%. However, German Bunds delivered negative returns as the market continued to react to increases in military and infrastructure spending from the previous quarter.
The bond market proved resilient in Q3 of the year. This quarter was filled with uncertainties and tensions due to consistent and unpredictable tariffs, as well as central bank actions around the globe, signaling the market to make prudent decisions. As such, there was strong demand for fixed income due to attractive yields, with US fiscal shifts supporting short-term debt. On the other side of the globe, Asian markets showed strength in investment-grade and high-yield dollar bonds, and sustainable debt saw slowing but continued growth. In general, global bond markets posted strong gains, driven by robust demand in artificial intelligence (AI) and technology, along with solid corporate earnings. During this quarter, the US Fed recommitted to rate cuts after a pause, delivering three 0.25% cuts. The yield curve continued to steepen, and short-term and intermediate-term rates declined due to the Fed's actions. In terms of sustainable bonds, overall volumes of labeled sustainable bonds declined, representing the lowest Q3 issuance since 2020.
Following the resilient performance in the previous quarter, the bond market ended the year on a positive trend in the last quarter. Concerns about inflation from tariffs were prevalent; however, most inflation reporting during the year did not show a noticeable increase, with annual inflation rates in major markets like the US remaining stable at 2.7%. Emerging market debt stood out as the strongest performer, with the US emerging-market local-currency bond category leading the way, achieving a 3.38% average gain during the quarter and finishing the year with stock-like returns of 19.58%. Municipal bonds gained further in Q4, returning 4.2% and remaining a stable and resilient investment. Economic growth continued to surprise on the upside as consumer spending remained strong, reflecting an optimistic performance in the bond market as a whole. One significant obstacle in this quarter was that the U.S. federal government experienced a shutdown lasting 43 days in October and November, which impacted the availability of economic data and deprived markets of typical economic statistics. The Federal Reserve lowered interest rates by another 0.5% in Q4, further steepening the yield curve. Thus, in Q4, the bond market saw a smooth closing to the year, despite slight uncertainties.
Overall, governments in the world adjusted their yields on bonds in 2025. US Treasury bills and notes, such as the 1-Year US Treasury Bill and 30-Year US Treasury Bond, experienced notable decreases in their yields. For instance, the yield of the 1-Year US Treasury Bill dropped from 4.18% in January to 3.54% in December, while the yield of the 30-Year US Treasury Bond fell from 4.773% to 4.18% over the same period. The total return on short- and intermediate-term US Treasury bonds increased to 4.24% due to the aforementioned drop. Outside the US, yields on German and UK government bonds rose to 2.85% and 4.48%, respectively. Following Japan's decision to raise interest rates from 0.25% in January to 0.75% in December across maturities, its government bond yields also rose. Major banks cut interest rates in the market. The Fed lowered rates by 75 basis points, while the Bank of England (BOE) and the European Central Bank (ECB) cut by 100 basis points. These actions aimed to combat uncertainties stemming from geopolitics, the risks of inflation, and a weaker employment market. An outlier was the Bank of Japan (BOJ), which chose to boost rates to its 30-year high (0.75% on December 19) in hopes of achieving price stability. Despite these factors, the year ended with an optimistic market outlook.
The US bond market saw a dip due to a weakening U.S. dollar, while global markets outperformed the US in both equities and bonds. However, US fixed-income nmarkets showed a positive trend, with the Morningstar US Core Bond Index gaining 7.12% for the year. Elevated starting yields anchored performance across most fixed-income segments.
In the UK, Gilts ranked as the second-best major sovereign debt market. Although inflation remained above target at 3.2% to 4.1% during the year, the Debt Management Office reassured the market by announcing modest bond issuance in November’s budget plan. Alongside interest rate cuts, Gilts delivered a 5.0% return for the year.
European markets saw supportive measures, with increased ECB forecasts for 2026 and plans for new debt issuance. Consequently, markets climbed due to divergence in monetary policy.
In Asia, Japan’s government bond yields climbed to a multi-decade high, with the 10-year Japanese Government Bond (JGB) yield reaching 2.06% by December, following the disclosure of a 21.3-trillion-yen fiscal stimulus package, raising concerns over the country’s debt burden.
China also saw mixed reviews. Policymakers committed to a GDP growth target of around 5%, with stimulus measures and policy support expected to boost domestic consumption. Thus, the PRC's bond market expanded, driven by government financing of stimulus measures. Nonetheless, due to trade-policy uncertainty, general investment incentives decreased, causing a decline in the 10-year yield in its bond market.
Emerging market equities dominated with annual returns above 30%. Specifically, emerging market debt was the top-performing fixed-income sector, returning 13.5%. Among these, Latin American bonds benefited from currency appreciation as the Brazilian real and Mexican peso rose against the US dollar.
The Investment-Grade Credit Market in the US was well-received by investors, with issuance amounting to $1.585 trillion for the year. The technology sector played a major role in offering jumbo deals, such as Meta and Oracle’s bond sales of $30 billion and $18 billion, respectively. Returns from investment-grade corporate bonds outperformed Treasuries, primarily driven by the financial sector. On the other hand, investment-grade corporates in Europe lagged behind their US counterparts in total returns but demonstrated relatively stronger performance against Euro Treasuries, also led by the financial and utilities sectors.
Looking ahead into 2026, both difficulties and opportunities are expected to arise.
Certain difficulties are foreseeable in the bond market for 2026. US’s growing debt increases the risk of higher future interest rates, as the government may need to offer more attractive yields to attract buyers. If the current fiscal policy continues, an increased supply of bonds could lead to downward pressure on prices and upward pressure on yields. Projections for economic growth have become less optimistic, particularly as inflation continues to erode consumer purchasing power.
Nevertheless, opportunities also arise amidst uncertainties. Emerging market bonds could offer compelling opportunities, with high real yields in local currency emerging market bonds. Improving fiscal positions and resumed investor inflows present additional positives. High-quality bond investments are likely to benefit in an environment of slower growth and more Fed rate cuts, as lower yields could result in increased price appreciation. AI-related capital expenditures in Asia could also benefit AI-related bonds, creating new opportunities in a nascent field. Sources and references:
Written by William ZHANG Jiahua and Cathy TAM Tsz Ching, Proofreading by Charles SHI Qiyuan, 26/01/2026
Published by Louise Danielle Sugiarto
In the first quarter of 2025, U.S. equity markets experienced a downturn, as rising policy uncertainty, particularly surrounding tariffs and world trade relations, weighed heavily on investor sentiment. Early in the year, growing concerns over protectionist measures and global trade disruptions led to a repricing of risk assets, with growth-oriented equities experiencing great pressure. This was reflected in the weaker performance of the Nasdaq relative to broader indices, as investors reassessed valuations of mega cap technology firms in heightened uncertainty. Specifically, discussions surrounding U.S. tariff increases on Chinese and European imports along with uncertainty over the future direction of U.S. trade policy, contributed to heightened market volatility and risk aversion. As a result, by the end of the quarter, the S&P 500 had declined by approximately 4.3%, while the Nasdaq Composite recorded a sharper drop of around 10.3%, showing a clear rotation from growth toward more defensive and value-oriented sectors[1].
In Europe, equity markets were relatively stable during the same period. Expectations of future interest rate cuts and easing inflation helped reduce downside risks, allowing European equities to outperform U.S. growth stocks. In addition, European equity markets are more heavily weighted toward traditional industries and consumer staples, which tend to be more defensive and less sensitive to valuation-driven sell offs during periods of global uncertainty. Meanwhile, Japanese equities remained highly sensitive to developments in monetary policy, as expectations surrounding further normalization by the Bank of Japan and fluctuations in the yen influenced exporter performance and cross-border capital flows[2] [3]. In China, equity markets continued to be largely policy driven, with investors closely monitoring stimulus implementation and signs of economic stabilization, resulting in cautious market behavior throughout the quarter.
In the second quarter of 2025, global equity markets experienced a strong rebound, showing a clear change from the risk avoiding sentiment earlier in the year. Expectations of interest rate cuts provided the “fuel” (lowering discount rates and boosting valuations), while “breakthrough earnings reports and orders in the AI sector” served as the “spark” (validating the profit narrative). Together, these elements ignited risk appetite. Investor sentiment improved as fears surrounding tariffs and trade tensions eased, allowing risk taking to return. As a result, major U.S. indices posted significant gains, with the S&P 500 rising by approximately 10.57% and the NASDAQ Composite surging by about 17.75% over the quarter, both reaching record highs. Market participation also increased, as gains extended beyond a narrow group of mega cap stocks[4].
European equity markets benefited from supportive monetary policy developments, following the European Central Bank’s decision on June 5, 2025, to reduce interest rates by 25 basis points. Lower discount rates improved equity valuations and provided support to cyclical and financial sectors. This is because revenues in these sectors are more sensitive to changes in the economic cycle, and lower borrowing costs tend to stimulate investment and consumer spending, which directly increase their earnings outlook[5]. In Japan, equities improved alongside global markets, although gains were partially constrained by ongoing concerns over yen appreciation and the implications of further policy tightening[6]. Meanwhile, Chinese equity performance remained mixed, with mainland A shares showing volatile movements, while Hong Kong listed equities were more responsive to global technology trends and policy related developments.
In the third quarter of 2025, global equity markets delivered strong gains[7]. In the U.S., major equity indices continued to climb at a more moderate pace compared to Q2, with the S&P 500 index advancing 7%, NASDAQ 100 rising by around 10% and the Russell 2000 small-cap index gaining over 12%[8]. The most significant development was a structural shift in market leadership, specifically, the expansion of leading sectors from large-cap technology and AI-related stocks to broader segments. This transition reflected improving investor confidence in the equity market and a reduced reliance on a narrow group of growth stocks to drive index-level returns, indicating healthier market breadth.
Major European indices, including the STOXX Europe 600, recorded positive returns and outperformed U.S. equities on a valuation-adjusted basis, reflecting fundamental differences in the sources of return between these two regions. While the gains in U.S. equities were primarily driven by earnings growth applied to already elevated levels, the advances in European stocks stemmed more from a recovery in previously depressed valuations such as relatively low P/E multiples. Improved sentiment toward the European growth outlook, alongside stabilizing energy prices and moderating inflation, helped reduce downside risks that had weighed on the region in previous years, improving investor confidence. This divergence has important implications for future expected returns. In the U.S., high starting valuations may imply that forward returns are increasingly dependent on sustained earnings growth, leaving equities more vulnerable to policy shocks and earnings fluctuations. Meanwhile, European equities entered Q3 with lower valuation multiples, allowing future returns to be supported by both earnings’ growth and valuation normalization, reinforcing European equities’ appeal to investors seeking diversification away from U.S. markets.
Meanwhile, emerging markets outperformed developed markets, supported by a weaker U.S. dollar and renewed capital flows into Asia, including China, where policy support measures helped stabilize investor sentiment, contributing to improved equity performance[9]. Overall, the third quarter marked a continuation and expansion of the mid-year recovery, as monetary policy support and strong technology-led earnings reinforced confidence across global equity markets.
The fourth quarter of 2025 extended the equity market’s positive trend though the pace of gains moderated compared to earlier quarters. The S&P 500 gained approximately 2.7% and the NASDAQ 100 rose around 2.5%. This moderation reflected a transition from rapid recovery-led rallies toward a phase of consolidation. International equities outpaced U.S. returns, with developed and emerging market indices advancing near +5% over the quarter. Despite lingering concerns surrounding U.S. fiscal policy uncertainty and geopolitical tensions, equity markets demonstrated stability heading into year-end.
European and international equities slightly outperformed U.S. markets, benefiting from relatively attractive valuations and expectations of further monetary easing by the ECB[10]. As inflation continued to trend lower across the euro area, investors grew more confident that interest rates had peaked, supporting equity demand across the region. Gains were concentrated in value-oriented sectors such as financials, energy, and industrials as investors balanced portfolios from earlier technology-driven rallies and increased exposure to international equity to diversify away from concentrated risk in U.S. large-cap growth stocks[11]. Seasonal year-end optimism further supported European equities, with several major indices approaching or reaching multi-year highs.
However, sentiment remained cautious due to weaker economic momentum in parts of the euro area and ongoing geopolitical uncertainties. By the end of the year, European equities were increasingly viewed as a diversification opportunity relative to U.S. markets, with investors allocating to sectors such as European financials and industrials which were less correlated with the U.S. technology-dominated indices[12], reinforcing a more balanced global equity outlook heading into 2026. Source:
Written by Erika LAU Tsz Yee, 10/03/2025
This research report provides an in-depth analysis of the current state of AI development, focusing on the available AI models, their applications in consumer and industrial sectors, and the key companies benefiting from the AI boom. The report compares AI models in mainland China with those globally, explores the market size and growth potential of AI applications in various industries, and highlights the adoption of AI by state telecommunications and other sectors.
The market for AI models is rapidly evolving, with significant advancements in both closed-source and open-source models. Closed-source models, such as GPT-3 by OpenAI and T5 by Google, are known for their robust performance and extensive applications in natural language processing (NLP) tasks. These models are characterized by their large parameter sizes and sophisticated architectures, enabling them to generate coherent and contextually relevant text. In contrast, open-source models like LLaMA by Meta (formerly Facebook) have gained prominence for their flexibility and community-driven development. LLaMA, with its versions ranging from 8B to 70B parameters, offers strong performance comparable to closed-source models. The open-source nature of these models allows for customization and optimization by developers worldwide, fostering innovation and reducing barriers to entry for AI applications.
China has made significant strides in developing its own AI models, with domestic models such as DeepSeek emerging as strong contenders. DeepSeek has demonstrated remarkable performance, particularly in language understanding and generation tasks, and has been adopted by major tech companies like Tencent, Alibaba, and Huawei. These models are often tailored to better understand and generate content in Chinese, addressing the unique linguistic and cultural nuances of the Chinese market. Advantages of Chinese Models: • Localized Understanding: Chinese models are optimized for the Chinese language, providing more accurate and contextually relevant responses. • Cost-Effectiveness: Open-source models like DeepSeek offer a cost-effective alternative to expensive closed-source models, making AI more accessible to a broader range of developers and businesses. • Customization: The open-source nature allows for extensive customization, enabling developers to tailor models to specific industry needs. Disadvantages of Chinese Models: • Global Reach: While Chinese models excel in domestic applications, they may face challenges in achieving global market penetration due to language and cultural barriers. • Resource Intensity: Training and deploying large models require substantial computational resources, which can be a limiting factor for smaller organizations.
AI glasses are emerging as a transformative technology, offering hands-free, real-time information and assistance. Companies like Ray-Ban and Huawei have already launched AI-enabled glasses that provide features such as voice commands, navigation, and translation. The market for AI glasses is projected to grow significantly, driven by advancements in display technology and miniaturization of components. Market Size and Growth Potential: • Current Market Size: The global AI glasses market is estimated to be around $1 billion, with a significant portion of sales coming from early adopters in tech-savvy regions. • Growth Potential: The market is expected to grow at a CAGR of over 30% in the next five years, driven by increasing consumer demand for wearable technology and the integration of AI features.
Autonomous driving technology is advancing rapidly, with companies like Tesla, Baidu, and Huawei leading the way. These companies are leveraging AI to develop advanced driver-assistance systems (ADAS) and fully autonomous vehicles. The adoption of AI in autonomous driving enhances safety, efficiency, and convenience on the road. Market Size and Growth Potential: • Current Market Size: The global autonomous driving market is estimated to be around $50 billion, with significant investments from both tech companies and traditional automakers. • Growth Potential: The market is expected to grow at a CAGR of over 20% in the next decade, driven by regulatory support, technological advancements, and increasing consumer acceptance.
AI is increasingly integrated into smartphones, enhancing features such as voice assistants, camera performance, and battery optimization. Companies like Apple and Samsung are at the forefront of incorporating AI into their devices, providing users with a more personalized and intelligent experience. Market Size and Growth Potential: • Current Market Size: The global smartphone market is estimated to be around $400 billion, with AI-enabled features becoming a standard offering. • Growth Potential: The market is expected to grow at a CAGR of around 5% in the next five years, driven by the continuous integration of AI and the launch of new, innovative features.
AI is also making its way into PCs, with companies like Lenovo and HP developing AI-enabled laptops and desktops. These devices offer enhanced performance, security, and user experience through AI-driven features such as noise cancellation, predictive typing, and system optimization. Market Size and Growth Potential: • Current Market Size: The global PC market is estimated to be around $200 billion, with AI-enabled PCs capturing a growing share. • Growth Potential: The market is expected to grow at a CAGR of around 10% in the next five years, driven by the increasing demand for intelligent computing devices.
AI toys are becoming popular among children and adults alike, offering interactive and educational experiences. Companies like Mattel and Hasbro are integrating AI into their toys, providing features such as voice interaction, personalized learning, and storytelling. Market Size and Growth Potential: • Current Market Size: The global AI toy market is estimated to be around $5 billion, with a growing number of startups and established companies entering the space. • Growth Potential: The market is expected to grow at a CAGR of over 25% in the next five years, driven by advancements in AI technology and increasing consumer interest in interactive toys.
State-owned telecommunications companies in China, such as China Telecom, China Mobile, and China Unicom, are actively adopting AI to enhance their services and operations. AI is used in network optimization, customer service, and data analysis, improving efficiency and user experience. Adoption and Impact: • Network Optimization: AI algorithms optimize network traffic, reducing congestion and improving service quality. • Customer Service: AI-powered chatbots and virtual assistants provide 24/7 customer support, enhancing user satisfaction. • Data Analysis: AI-driven analytics help in predicting market trends and optimizing marketing strategies.
AI is also being adopted in various other sectors, including finance, healthcare, and manufacturing. In finance, AI is used for fraud detection, risk assessment, and personalized financial advice. In healthcare, AI assists in diagnostics, patient monitoring, and drug discovery. In manufacturing, AI optimizes production processes, quality control, and supply chain management. Adoption and Impact: • Finance: AI algorithms detect fraudulent transactions in real-time, reducing financial losses and improving security. • Healthcare: AI-powered diagnostic tools provide accurate and timely diagnoses, improving patient outcomes. • Manufacturing: AI-driven automation and predictive maintenance reduce downtime and improve production efficiency.
• Baidu (百度, 09888.HK): A leading Chinese tech company known for its search engine and AI capabilities. Baidu has made significant investments in AI research and development, particularly in autonomous driving and natural language processing. • Alibaba (阿里巴巴, 9988.HK): A global e-commerce giant that has integrated AI into its platform for personalized shopping experiences, supply chain optimization, and customer service. • Tencent (腾讯, 0700.HK): A major player in the tech industry with a focus on social media, gaming, and AI. Tencent has developed AI applications in areas such as gaming, social networking, and healthcare.
• Huawei (华为): A leading global provider of information and communications technology (ICT) infrastructure and smart devices. Huawei has developed AI-enabled smartphones, PCs, and networking equipment. • Lenovo (联想, 0992.HK): A multinational technology company known for its PCs and smart devices. Lenovo has integrated AI into its products to enhance performance and user experience.
• DeepSeek: An AI model developed by a Chinese company that has gained significant attention for its performance and cost-effectiveness. DeepSeek has been adopted by various industries for its robust language understanding and generation capabilities. • SenseTime (商汤科技, 0020.HK): A leading AI company specializing in computer vision and deep learning. SenseTime has developed AI applications in areas such as facial recognition, video analysis, and autonomous driving.
The current landscape of AI development is marked by rapid advancements and widespread adoption across various sectors. Chinese AI models are making significant strides, offering localized solutions and cost-effective alternatives to global models. The integration of AI in consumer products such as AI glasses, autonomous vehicles, smartphones, PCs, and toys is driving market growth and enhancing user experiences. On the industrial and commercial front, AI is being leveraged by state telecommunications and other sectors to optimize operations and improve services. Key companies such as Baidu
Source: Huaxi Security. (2025, March 5). DeepSeek: Initiating the ‘Android Moment’ of AI.
Written by LU Zhiyuan David, 17/02/2025
The semiconductor industry is one of the most vital sectors in today’s technology landscape, driving advancements in artificial intelligence (AI), cloud computing, telecommunications, and consumer electronics. Since the Second World War, this industry has undergone significant transformations due to technological advancements, economic shifts, and geopolitical influences. At present, semiconductor firms are at the forefront of global innovation, with Nvidia, TSMC, Intel, AMD, and Qualcomm among the most dominant players in this space.
This report provides a detailed analysis of the semiconductor market, covering its historical development, market structure, and investment potential. With semiconductor revenues expected to reach $1 trillion by 2030, investors must navigate challenges such as supply chain disruptions, geopolitical tensions, and emerging technologies. Understanding the strengths, weaknesses, and strategic positioning of leading semiconductor firms is crucial for making informed investment decisions in this rapidly growing industry.
The semiconductor industry serves as the backbone of the digital economy, impacting various industries, including AI, autonomous vehicles, and high-performance computing. The increasing demand for higher performance, lower power consumption, and smaller chip sizes has led to significant investment in research and development (R&D) and advanced manufacturing technologies.
However, several challenges threaten the stability of the industry. Geopolitical tensions between the U.S. and China, supply chain vulnerabilities, and rising production costs have created uncertainties for investors. Additionally, fierce competition among semiconductor firms has reshaped the industry's landscape, forcing companies to develop innovative strategies to maintain their market positions.
This paper explores the historical background of the semiconductor industry, evaluates key industry participants, and assesses existing opportunities and challenges. This report aims to provide valuable insights for investors looking to capitalize on this sector's growth by analyzing financial performance, market standing, and future growth potential.
The origins of the semiconductor industry date back to the invention of the transistor in 1947 by Bell Labs, which laid the foundation for the development of integrated circuits (ICs) in the 1950s and microprocessors in the 1970s. Intel, founded in 1968, was among the companies that revolutionized the microprocessor industry, supplying chips that powered early personal computers. During the 1980s and 1990s, the industry witnessed a major structural shift with the emergence of Taiwan Semiconductor Manufacturing Company (TSMC). TSMC introduced the foundry business model, allowing companies to design advanced chips without owning fabrication plants. This model enabled companies like AMD, Qualcomm, and Nvidia to focus on chip design and innovation while outsourcing manufacturing to specialized foundries.
The semiconductor industry experienced rapid growth in the 2000s and 2010s, driven by cloud computing, artificial intelligence (AI), mobile devices, and high-performance computing (HPC). Nvidia transitioned from a gaming GPU manufacturer to a leader in AI computing, with its GPUs playing a crucial role in training deep learning models.
Meanwhile, TSMC’s advancements in 5nm and 3nm process nodes reinforced its position as the world’s top semiconductor foundry, supplying chips for Apple, AMD, and Nvidia.
As of 2022, the global semiconductor market was valued at approximately $600 billion, with projections indicating growth to $1 trillion by 2030. This expansion is fueled by the increasing adoption of AI, 5G, and HPC. However, risks such as supply chain disruptions, geopolitical tensions, and regulatory constraints remain critical concerns for investors.
Nvidia has expanded beyond gaming GPUs to become a dominant player in AI computing and data center infrastructure. Its A100 and H100 GPUs are widely used in AI training, cloud computing, and autonomous vehicles, making Nvidia a vital provider of AI hardware.
With a market share exceeding 80% in the discrete GPU segment, Nvidia remains the leading supplier of AI acceleration hardware. In 2023, the company reported a 126% year-over-year revenue increase, driven by soaring demand for AI chips. However, Nvidia faces strong competition from AMD’s AI chip offerings and Intel’s AI accelerator initiatives. Additionally, U.S. export restrictions on advanced AI chips may restrict Nvidia’s ability to sell high-end GPUs to China, potentially impacting its global revenue.
TSMC is the largest contract semiconductor manufacturer in the world, producing chips for leading technology companies. The company holds over 55% of the global foundry market and is widely regarded as the most advanced semiconductor manufacturer, specializing in 3nm, 5nm, and 7nm process nodes.
Apple alone accounts for approximately 25-30% of TSMC’s revenue, while Nvidia and AMD also rely heavily on TSMC for chip production. To mitigate geopolitical risks, TSMC is investing $40 billion in new fabrication plants in Arizona to enhance supply chain resilience and reduce dependence on Taiwan. However, rising production costs and ongoing political tensions in Taiwan pose potential long-term risks to TSMC’s stability.
Intel, once the undisputed leader in semiconductor innovation, has faced setbacks due to production delays and heightened competition. However, the company is investing in Intel Foundry Services (IFS) and next-generation processors to regain its market position.
AMD has strengthened its presence in both the CPU and GPU markets, competing directly with Intel and Nvidia. Its Ryzen CPUs and Radeon GPUs have gained significant market share, while its acquisition of Xilinx has expanded AMD’s role in AI and adaptive computing, particularly in data centers and embedded systems.
Qualcomm, a dominant player in mobile chipsets, is diversifying its business beyond smartphones by expanding into 5G, AI computing, and automotive semiconductors, positioning itself for growth in emerging markets.
Geopolitical events highly influence the semiconductor industry. The ongoing U.S.-China trade war has resulted in export restrictions on advanced semiconductor technologies, disrupting supply chains and limiting market access for certain firms. Taiwan remains a critical risk, as TSMC’s technological dominance makes it a strategic asset in global semiconductor production. Any escalation of tensions in the region could severely impact the industry’s supply chain and production capacity.
The 2021 global semiconductor shortage exposed weaknesses in the industry’s supply chain, leading to increased prices and production delays across multiple sectors. Rising raw material costs, manufacturing expenses, and geopolitical uncertainties continue to challenge semiconductor companies. In response, firms are expanding their manufacturing operations in the U.S., Japan, and Europe to reduce dependence on a single region.
As data centers and AI applications demand higher power consumption, semiconductor firms are prioritizing the development of energy-efficient chip architectures. AI accelerators, neuromorphic computing, and advanced power management technologies are becoming key areas of investment as companies seek to optimize performance while reducing energy consumption.
The semiconductor industry remains one of the most dynamic and rapidly growing sectors, with Nvidia, TSMC, Intel, AMD, and Qualcomm playing a leading role in shaping the market. While AI, 5G, and cloud computing present significant investment opportunities, geopolitical tensions, supply chain disruptions, and increasing competition must be carefully managed.
For investors, companies with strong technological leadership, well-established supply chain strategies, and diversified revenue streams offer the best long-term potential. As the semiconductor industry transitions toward next-generation computing and energy-efficient technologies, strategic investments in leading semiconductor firms will be crucial for capitalizing on future growth opportunities.
Written by Dacian DENG Shen, 16/02/2025
Since World War II, oil prices have been influenced by a complex interplay of geopolitical events, economic cycles, and shifts in supply and demand. Understanding these factors is crucial for investors and policymakers navigating the evolving energy landscape.
After WWII, oil prices remained relatively stable due to the rapid industrialisation of Western economies. The establishment of OPEC in 1960 marked a turning point, as it began to exert more control over oil production and pricing. The 1973 Yom Kippur War led to an oil embargo by Arab nations, causing prices to quadruple. The Iranian Revolution 1979 further destabilised oil supplies, driving prices up to approximately $97 per barrel by 1980.
The early 1980s saw a brief price decline due to economic recession and increased production from non-OPEC countries. The Gulf War 1990 caused another spike, but prices stabilised in the late 1990s due to increased production and a global economic slowdown. In the early 2000s, prices rose significantly, driven by demand from emerging economies like China and India, peaking at over $140 per barrel in mid-2008 before the financial crisis led to a sharp decline. The U.S. shale boom increased global oil supply, leading to a price collapse, with Brent crude falling below $30 per barrel in early 2016.
The U.S. and Saudi Arabia agreed to settle oil trades in U.S. dollars in 1974, creating a petrodollar system that strengthened the dollar's role as a global reserve currency. The collapse of the Bretton Woods system and the subsequent dollar devaluation played a crucial role in the surge in oil prices in the 1970s. The establishment of the petrodollar system further linked the dollar's value to the oil market. A weaker dollar means more dollars are needed to purchase the same amount of oil; hence, the price increases.
Historically, wars, sanctions, and political instability in oil-producing regions have caused significant price spikes. The Gulf War and tensions between Russia and Ukraine have influenced global oil markets. The oil market is often overly sensitive to potential war or production cut news, with rumours sometimes leading to price increases. This phenomenon is partly due to the mental inertia caused by the repetition of historical events, leading to market speculation. Traders and investors often predict the future based on past experiences, reacting quickly to similar situations and exacerbating market volatility. Anticipation of conflict can lead traders to speculate on price increases, further driving up costs even before any actual disruption occurs.
Conflicts often lead to physical disruptions in oil production or transportation routes. Increased trade barriers, sanctions, or physical disruptions to production and transportation infrastructure can lead to shortages and costs. The concept of a "war premium" embedded in oil prices due to geopolitical tensions is well-documented. For instance, estimates suggest a war premium of about $25 per barrel was present even before recent escalations involving Iran and Israel
In the long term, the use of new energy sources may undermine the dominance of oil. With increasing environmental awareness and technological advancements, more countries and companies are increasing investment in renewable energy. The widespread use of clean energy sources such as solar, wind, and hydropower will gradually reduce dependence on traditional fossil fuels. The increasing popularity of electric vehicles will also reduce the gasoline demand, further weakening oil's dominance in the energy market.
Source:
Written by Alexander ANTONIOU, 10/02/2025
Emerging markets have not seen the same attention of the BRICS era since the global financial crisis, highlighted by a lagging Chinese economy and US dollar strength. Nonetheless, India stands out as an exceptional outlier from pessimistic investor outlook surrounding emerging markets. India has outperformed US equities since 2019, with the benchmark Nifty 50 index having doubled over the past five years.
India’s economy has outperformed the global economy and emerging markets, boasting GDP growth over 6% over the past 45 years, whilst set to overtake Germany and Japan to become the third-largest economy by 2030. Despite stellar growth, high shares of Indians still face unemployment, stagnant wages, and widening income inequality. Some investors fear that a speculative bubble surrounding Indian equities has formed, fuelled by tens of millions of first-time domestic investors piling into stocks and mutual funds.
India remains a good investment opportunity with diversification across various expanding sectors and growing IPOs. Many investors are sceptical as high valuations in the Indian equity market require strong judgement and careful management; stock picking remains key.
Infrastructure investment has been on the forefront of the government’s economic strategy through initiatives such as ‘Make in India’. This initiative aims to boost domestic manufacturing through infrastructure development and industrialisation, creating demand for machinery, construction materials, and technological solutions. The Union Budget 2025 is expected to increase infrastructure’s allocation to ₹18 lakh crore from ₹11.11 lakh crore in 2024.
India’s healthcare sector is evolving with rising incomes and improved health awareness in liaise with pandemic efforts to elevate the healthcare landscape of a growing population. Investors expect a structural increase in domestic healthcare from both government and the private sector; schemes like Ayushman Bharat Yojana (aka Modicare) aim to increase access to healthcare through free health insurance for lower income households.
Renewable energy is prominent in India, with a goal of achieving net zero by 2070. In 2024, India’s renewable energy capacity reached 205GW, putting it on track to make its 500GW target for 2030; this target constitutes meeting 50% of India’s electricity needs from non-fossil fuel sources by 2030. Solar energy is experiencing growth of 36.5% CAGR. A new government report announced a push for increased investment in EVs, offshore wind, and green hydrogen, to meet further clean energy goals.
Source:
Written by Justin CHUNG Lok Yin, 29/01/2025
On 20 January 2025, Donald Trump returned to the White House. The perceived arrogant leader signed over 20 executive orders and actions on his Inauguration Day ‒ more than any previous US president. Trump has announced many changes so far. Many keywords and aspects can ring the bell of investors’ minds – Tariffs, AI, crypto, Staff, Greenland, Panama Canel, China, wars, taxes, expenditures, immigrants, and more. These all added complexities to the current global markets. Due to space and word limitations, this weekly update will focus on two of the most-discussed areas of the Trump administration: Trade Policy and AI.
Trump has been known for his aggressiveness in imposing tariffs. In the election period, he claimed to increase tariffs on China heavily upon his presidency. Trump's tariffs externally act as bargaining chips with nations and internally offset the cost incurred by the tax-cut policy. The market has been concerned about the consequent deterioration of international relationships resulting in trade wars and potential re-inflation as import products become more expensive upon the tariff rise.
Instead of aiming at China as in the campaign last year, Trump began by pivoting to Canada, Mexico and Colombia, which was a pretty surprising approach. Trump first announced plans for 25% tariffs on Canada and Mexico. As for China, on 22 January, Trump proposed a 10% tariff on Chinese goods. China and Hong Kong stock markets fell sharply. The Hong Kong market ended six consecutive rallies, and the Hang Seng Index (HSI) fell below 20,000 points. However, this tariff is significantly lower than the 60% suggested in his election campaign. Trump’s claim two days later confirmed his “temporary leniency” over China, as he said he “would rather not raise tariffs in China”. This brought HSI back up to 20,000 points. On the other hand, weaker than expected, a 2.5% tariff on goods from the Eurozone was also mentioned. European luxury goods stocks performed strongly. For instance, since 20 January, LVMH advanced 10% and Hermès climbed 6.5%. Unexpected tariff leniency resulted in the correction of The Dollar Index by up to 1% since his Inauguration Day. Some suggested that Trump may have switched to a more gradual approach in handling tariffs.
To Trump, tariffs are now viewed as bargaining chips. The aforementioned 10% tariff threat was indeed in response to China's role as a major supplier of fentanyl raw materials, as well as to push China to approve a potential US deal with TikTok. Trump also coerced Colombia to accept deportees using the same tariff tactic. As concerns evolve and change across time, Trump’s claims – but not concrete actions – on tariffs could show little implication for the medium- to long-term economy. PIMCO’s head of US public policy Libby Cantrill opined that the market should not "extrapolate too much” from the initial delays on Trump tariffs. Given that Trump’s style is often more ideological and exaggerated, investors are already prudently observing the new administration’s moves and distinguishing factors from noises.
On 21 January, Trump announced a $500 billion (€480 billion) investment in artificial intelligence infrastructure in the US. Unsurprisingly, many tech giants saw impressive gains on 22 January. Nvidia surged more than 4%, pushing its market capitalisation to $3.6 trillion, surpassing Apple once again. Microsoft also saw a rise of around 4%, while Arm experienced a jump of nearly 16%. Foreign players also rose. Siemens Energy shares soared more than 10% this week following the announcement. The German energy company anticipates a “massive tailwind” as it manufactures equipment ranging from gas and wind turbines to power network components. On top of the technology sector, Trump urged banks to loosen regulations and collaborate with tech giants to invest billions in developing AI technology. The Financial Select Sector Index rose 6.32% YTD as of 29 January.
Although the technology sector was significantly suppressed as the Chinese AI model Deepseek advanced in the final week of January, Trump affirmed that the US is in a position to compete and regarded Deepseek as a “wake-up call”. Market views his response as the beginning of a competitive yet flourishing AI era, expecting strong demand in the technology sector in the medium to long horizons.
Source:
Written by Hong Yee Ching Robin, 26/01/2025
Gold notched its best annual performance in over a decade last year. The prices rose about 26% in 2024, driven by central bank as well as retail investor purchases. Gold has always been the yellow metal that act as a hedge against risk. JPMorgan analysts also expect gold prices to rise, especially if U.S. policies become “more disruptive” in the form of increased tariffs, elevated trade tensions and higher risks to economic growth. Besides the geopolitical uncertainty that will occur in the foreseeable future, the high interest rates that central banks in most of the countries are maintaining.
Geopolitical uncertainty: Flows of cash are expected to remain the same and buy Gold as the alternative assets for Central Banks and retail investors. This is due to the unstable border between Russia and Ukraine, Israel and Palestine, and the economic and political tension between the US and China. Tom Mulqueen, metals strategist at Citi Global Markets also stated that they consider “the gold bull market has taken a pause following U.S. presidential elections but should resume in 2025 underpinned by further deterioration in the U.S. labor market, still-high interest rates weighing on growth, and higher ETF demand”.
Central Banks: Central banks, which slowed gold purchases in late 2024, might also return as buyers if prices correct significantly. The World Gold Council survey also revealed in the second half of 2024 that Central Banks are likely to purchase more Gold in the next 12 months. This should further bolster demand for the precious metal. Interest rates are also expected to cut at a slow pace, where lower interest rates is another factor expected to bolster gold prices next year. This should reduce the opportunity cost of holding gold, which is non-interest-bearing.
It is possible that there will be a slightly deeper correction before the price actually breaches the current all time high resting around the 2790 handle. Despite short-term challenges, UBS remains bullish on gold for the next 12 months, projecting prices to reach $2,900/oz by the end of 2025.
Source: https://www.cnbc.com/2025/01/06/gold-copper-oil-price-outlook-2025.html
Written by Charles SHI Qiyuan, 12/01/2025
In the first quarter of 2024, major central banks maintained high interest rates to manage inflation and prevent economic recession. After two years of multiple interest rate hikes, both the Federal Reserve and the European Central Bank adopted a more cautious approach to rate hikes, signaling the possibility of pausing or gradually lowering rates. The Federal Reserve decided to keep the federal funds rate steady at 5.25%-5.5%, emphasizing the slowdown in economic growth amid inflationary pressures and the uncertainty in financial markets. Although inflation in the Eurozone showed signs of easing, the ECB's expectations for rate cuts were not strong. The Bank of England maintained its rate at 5.25%. Meanwhile, China’s economy showed a stronger-than-expected recovery post-pandemic, with manufacturing and consumer spending picking up, which positively impacted GDP growth expectations.
With interest rates remaining stable, the bond market maintained relatively steady yields in the short term. Due to the delayed expectations of rate cuts and the generally cautious sentiment in the market, fixed-income assets became more attractive compared to equities. This drove some investors to shift towards long-term bonds in search of higher fixed returns.
In June, the European Central Bank reduced its three key policy rates by 25 basis points, marking its first rate cut of the year. The main refinancing rate was lowered to 4.25%, the marginal lending rate to 4.50%, and the deposit rate to 3.75%. The move aimed to support economic recovery by reducing borrowing costs and alleviating growth pressures, thereby bolstering market confidence. As a result, Eurozone government bond prices generally rose, and yields declined. The yield on the 10-year German Bund even briefly fell to 2.2%. Investors, seeking to lock in higher returns, shifted towards longer-dated bonds, increasing demand and prices for long-term debt.
At the same time, concerns arose regarding the U.S. government’s debt limit, as negotiations in Congress to raise the borrowing cap remained unresolved. This uncertainty led to heightened market caution, with short-term U.S. Treasury yields rising as investors sought higher returns to offset perceived risks (with one-month Treasury yields briefly surpassing 8%). The uncertainty contributed to increased volatility in equity markets and a shift toward safe-haven assets like gold. Within the bond market, investor preference leaned toward ultra-short-term U.S. Treasuries, while other segments saw more muted activity. After an agreement was reached to raise the debt ceiling, an accelerated pace of Treasury issuance led to a temporary increase in supply, applying downward pressure on bond prices.
On August 5th, global stock markets experienced a sharp decline, with major markets in Europe, the U.S., and Japan triggering multiple circuit breakers. This event, referred to by some as a "Black Monday," led investors to seek safe-haven assets, resulting in significant capital inflows into the bond market. The shift in risk sentiment increased demand for bonds, pushing prices higher and yields lower. For instance, the yield on the 10-year U.S. Treasury bond fell by two basis points to 3.78%, while Germany’s yield dropped by nine basis points to 2.13%. While stock market volatility can enhance the relative attractiveness of bonds, heightened uncertainty may also reduce market liquidity, contributing to price fluctuations.
In September, the Federal Reserve cut interest rates by 50 basis points, triggering short-term volatility in the U.S. Treasury market. The short end of the yield curve declined notably as some investors shifted from short-term to long-term U.S. Treasuries, driving up their prices. Meanwhile, lower borrowing costs for corporations and governments supported economic activity, leading to adjustments in global asset allocations as capital flowed into the U.S. Treasury market. The ECB and the Bank of England also implemented rate cuts in September, contributing to a general decline in bond yields and an increase in bond prices. The reduction in financing costs enhanced the appeal of Eurozone bonds within global asset portfolios, helping to stabilize market sentiment.
In October, the U.S. Treasury market experienced notable adjustments as the seven largest foreign holders of U.S. debt collectively reduced their holdings, following five consecutive months of increases. This shift marked a transition from accumulation to a more cautious approach, with some investors trimming their positions. Notably, China reduced its holdings by $11.9 billion to $760.1 billion, the lowest level since February 2009, while Japan also decreased its holdings by $20.6 billion. These moves reflected evolving investor sentiment toward U.S. Treasuries, influenced by a combination of domestic and international economic and policy factors. The large-scale sell-off contributed to a decline in bond prices, driving yields higher. This, in turn, increased government borrowing costs, potentially affecting broader economic conditions, including employment trends. Additionally, shifts in demand for U.S. Treasuries contributed to market volatility and added to investor caution.
In November, China issued $2 billion in sovereign bonds in Riyadh, Saudi Arabia, comprising a $1.25 billion 3-year tranche and a $750 million 5-year tranche, with coupon rates of 4.284% and 4.340%, respectively. This issuance expanded the supply of offshore U.S. dollar-denominated sovereign bonds and supported the development of China’s offshore bond markets in both primary and secondary markets. The offering achieved the lowest spread in the U.S. dollar bond market to date, providing a pricing benchmark for Chinese institutions seeking U.S. dollar financing. Additionally, it contributed to the development of the offshore U.S. dollar bond yield curve, serving as a reference for similar issuances. The total subscription amount reached $39.73 billion—19.9 times the issuance size—highlighting strong investor demand and the role of Chinese sovereign bonds in global market diversification.
Written by Sarah LEONG Si Ian, 29/12/2024
In 2024, the market performed more optimistically than expected, where there were concerns of recession, inflation, the US election and some more geopolitical incidents. This has been reflected in a growth of 13% of S&P 500 earnings, whereas prices of private credits grew by 11%.
In March, the Bank of Japan (BOJ) announced an increase in the interest rate to a range between 0% to 0.1%, marking the end of the era of negative interest rate in Japan for 17 years. In late July, the BOJ again announced a 0.25% increase in its interest rate, which caused a serious downturn in the stock market afterwards in August. While the BOJ has been hiking its interest rate, the Fed has announced its first interest rate cut in September since pandemic recovery, causing a drop in the Federal Funds Rate by 50 basis points to a range of 4.75% to 5.00%.
Following Trump’s Election in November, US indexes have reached a record high. The Dow surged by 3.6%, adding over 1,500 points, while the S&P 500 and Nasdaq Composite rose by 2.5% and 3%, respectively. Several market sectors are expecting deregulation from Trump’s government. Tesla, with its CEO Elon Musk being the supporter of Trump, has recorded a 15% rise in its stock price after the election.
Artificial Intelligence (AI) has remained highly potential. This can be reviewed by up to a 33% jump in NASDAQ and high increases in other US indexes. Nvidia, a chipmaker, has benefited the most from the recent AI trend and twice officially become the world’s most valuable publicly traded company in 2024. On the other hand, crypto is another era with high growth following the launch of spot bitcoin exchange-traded funds in January 2024. Further growth is seen after Trump’s election in November, which was financially supported by the crypto industry.
Sources: https://www.cnbc.com/2024/12/25/ai-crypto-top-tech-stocks-applovin-microstrategy-palantir-nvidia.html https://www.jpmorgan.com/insights/markets/top-market-takeaways/tmt-past-present-future-heres-where-we-stand https://www.vantagemarkets.com/en/academy/markets-events-2024/
Written by Erika Lau, 8/11/2024
Donald Trump has proposed increasing tariffs on imports, suggesting rates of up to 60% for China and 10% for other countries. Higher tariffs could lead to increased costs for consumers, potentially exacerbating trade deficits and contributing to inflation and deglobalization trends.
Trump plans to boost the production of U.S. fossil fuels, emphasizing increased drilling activities from day one. He aims to open new areas for oil exploration, arguing that this would lower energy costs. However, analysts express skepticism about the feasibility and long-term impact of these measures.
Electric Vehicle Tariffs: Increased tariffs could affect electric vehicle (EV) exports from China. Domestic automakers like General Motors (GM), Ford (F), and Stellantis (STLAM) may benefit from reduced competition, with shares of GM and Ford recently rising by 2.5% and 5.6%, respectively. Regulatory Changes: Companies like Toyota could gain if EV regulations are reduced or eliminated, given their focus on hybrid vehicles over all-electric models. Tesla's Market Performance: Shares of Tesla soared by 15%, reaching a new 52-week high, partly influenced by CEO Elon Musk's active engagement in key markets.
Trump's policies may lead to reduced investment in renewable energy within the U.S. Companies like Plug Power (PLUG) and Sunrun (RUN) experienced significant stock declines of 22% and 30%, respectively. In Europe, renewable energy firms such as Orsted (ORSTED) and Nordex (NDX1) also saw their shares fall by 13% and 8%.
There is debate over whether Trump would continue supporting the "Chips and Science Act," which he previously criticized. Experts believe he may uphold the act due to bipartisan support for domestic semiconductor manufacturing. The legislation, launched in 2022, has already facilitated significant investments from companies like TSMC and Samsung, offering them $6.6 billion and $6.4 billion, respectively, to build factories in the U.S. Past policies have affected companies like Huawei, ZTE (000063.SZ), and SMIC (0981.HK), which faced challenges due to trade restrictions. Continued policies could impact China's ability to hire overseas talent and acquire semiconductor equipment, as evidenced by a one-third increase in China's imports of semiconductor equipment to $24.12 billion in the first nine months of this year.
Trump Media & Technology Group (TMTG): The stock hit a two-week low after initial excitement faded. It peaked at $51 on October 29 but retracted to $27 by November 8, as investors reassessed its fundamentals. Bitcoin: Bitcoin reached new highs at $76,167, up 10% over the past five days, amid speculation about potential crypto-friendly regulations.
The market is expected to experience increased volatility in response to these policy proposals. Investors should pay close attention to news and potential headwinds arising from new policies and statements, adjusting their strategies accordingly.
Source:
Written by Kevin Xia, 19/3/2024
On the secondary market, Nvidia has been making significant strides in the tech industry, particularly in the realm of artificial intelligence (AI). The company's GPU Technology Conference (GTC) 2024 has begun, and investors are anticipating details on the GPUs based on its next-generation architecture, Blackwell. The stock's recent performance has made this year's GTC even more anticipated among investors. Analysts predict a moderate buy rating for Nvidia with an average twelve-month price prediction of $829.66.
Apart from Nvidia, there are two upcoming IPOs that also caught a lot of attention. SHEIN, the fast-fashion giant, has confidentially filed to go public in the U.S. The company was last valued at $66 billion and could be ready to start trading on the public markets as soon as 2024 Q2. However, SHEIN faces challenges related to labor practices and its environmental impact.
On the other hand, Reddit is closing in on a stock offering that could rank among the biggest U.S. IPOs so far this year. The social media company has set a price range of $31 to $34 a share. Despite revenue growth, Reddit faces profitability challenges and aims to boost ads. Disclaimer: Investors should consider these factors and their own risk tolerance when evaluating these investment opportunities. As always, it's recommended to conduct thorough research or consult with a financial advisor before making investment decisions.
Sources:
Written by Erika Lau, 12/3/2024
Founded in 2017, Yatsen Holding Limited (NYSE: YSG) is a leading China-based beauty group. It operates various skincare and color cosmetics brands, including Galénic, DR.WU, Eve Lom, and Perfect Diary. Yatsen focuses on providing high-quality beauty products to consumers in China and internationally.
As of March 7th, 6:52 pm GMT, the stock price of YSG is $0.51 USD, reflecting a month-on-month decline of 18.9% and a year-on-year decline of 31.8%. Yatsen has experienced both growth and challenges in its financial performance. In the fourth quarter of 2023, the company reported a 6.7% increase in total net revenues compared to the prior year period.
However, the company’s total net revenues for the full year of 2023 decreased by 7.9% compared to the previous year, indicating a potential slowdown in growth. Yatsen also reported a net loss of RMB 750.2 million (US$105.7 million) for the full year of 2023, which decreased by 8.7% compared to the prior year period. This was primarily due to significantly increased marketing expenses while sales volume remained weak. Additionally, in the fourth quarter of 2023, the company recorded a goodwill impairment, indicating that the carrying value of the Eve Lom reporting unit exceeded its fair value. This impairment was primarily attributed to weaker operating results than expected at the time of acquisition. Such impairments can negatively impact investor confidence and lead to a decline in the stock price.
In terms of past deals, Yatsen has focused on brand acquisition and geographical expansion. In 2020, the company acquired the beauty brand Little Ondine and the French skincare player Galenic. In 2021, it acquired the British premium skincare brand Eve Lom. In 2023, Yatsen’s jointly built factory with Cosmax Inc., a major cosmetics manufacturer in South Korea, began operations in Guangzhou, China. Looking ahead, Yatsen aims to pursue sustainable growth through ongoing innovation across its brands. The company’s strategic plan includes brand repositioning, new product launches, and a focus on enhancing research and development capabilities. With the newly built factory, Yatsen is transitioning from an OEM to an ODM business model, which is expected to improve quality control and potentially lead to an increase in sales volume in future reporting periods.
Source:
Written by Jonathan Chen, 14/6/2024
U.S. Equities and AI: The technology sector, particularly companies involved in artificial intelligence (AI), remains a strong investment theme. The market has shown robust earnings growth expectations, with the tech sector expected to account for a significant portion of this growth. Companies like Nvidia, which has seen significant gains, are at the forefront. This trend is expected to continue as AI adoption broadens across various sectors
Consumer Staples: In an environment of persistent inflation, consumer staples stocks are seen as relatively resilient. These companies, which sell essential goods like food and basic consumer products, tend to perform well even when consumers cut back on non-essential purchases. Some of the top-performing consumer staples stocks include Costco, Walmart, and Procter & Gamble
Interest Rates and Fixed Income: Central banks, including the Federal Reserve, have signaled potential rate cuts in the near future. This pivot could provide a favorable environment for bonds, particularly short-term bonds, as interest rates gradually decline. Investors may want to consider diversifying their fixed-income portfolios to include a mix of short- and intermediate-term bonds to mitigate reinvestment risk and capitalize on the potential for lower yields
Geographical Diversification: Beyond the U.S., Japan's stock market is gaining attention due to solid corporate earnings, favorable monetary policy, and economic reforms. Emerging markets like India and Mexico also present opportunities due to their growth potential and strategic positioning in global supply chains
Source:
