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While investors have seen highs and lows in trade tariff negotiations in the past few months, after selloffs from the initial shock, markets in China and more broadly Asia got back on track and have quietly delivered strong performance this year so far.

Asian and Chinese equities have returned 16.6% and 23.0% in the first seven months of the year, outpacing the 11.5% return from global equities.¹ Credit spreads are back at historically tight levels. China real estate credits have also bounced back to deliver a 10.2% return, compared to global high yield’s 7.2% during the period.²

To begin with, Asia’s broad range of return opportunities—spanning different asset classes and countries—gives the region a fundamental advantage. Beyond this, developments such as de-dollarization and enthusiasm surrounding Chinese AI innovation are also among the many reasons behind Asia and China’s strong performance today.

We believe now could be an opportune time to consider investing in Asia and China again—and a multi-asset approach could be the best way for reentry. 

Looking ahead, several factors support Asia’s momentum, with de-dollarization as a particularly strong driver over the medium term.

The events in April—marked by selloffs in US Treasuries and sharp fluctuations in the 30-year yield—have done damage to their special status as reserve assets and the US dollar’s role as a reserve currency. The selloffs were brief but have raised fresh questions about the long-standing US fiscal issues on top of concerns about inflation and economic growth.

Although a transition away from US assets and the dollar is unlikely to happen overnight, there is reconsideration of the dollar’s role worldwide and we may be on the verge of a significant structural change. Even after an almost 11% decline in the first half of the year, we expect the US dollar to weaken further in the medium term.³ We also see room for foreign investors to increase their foreign exchange hedge ratios.

This trend benefits Asian assets in several ways. Historically, a weaker dollar is generally correlated with positive Asian equities return. At the same time, we are witnessing capital flowing back into Asia, with partial repatriation of funds. Broadly speaking, global investors have slowed their pace in allocating to US assets in the past three months, while flows to emerging markets and Asia (not including Japan) have picked up.

While it’s important not to jump to conclusions about the final outcomes of tariff policies, many Asian countries have managed to secure relatively favorable terms. Although new deals and exemptions provide some relief, we still anticipate a noticeable slowdown in regional growth for the second half of the year. Orders and shipments accelerated as exporters rushed to deliver goods before new tariffs take effect. This has temporarily boosted exports in the second quarter, but it has only postponed the expected impact of tariffs, which will likely become apparent in the third quarter.

As a result, inflation has not yet risen as much as might have been expected. This gives central banks across the region considerable flexibility to lower interest rates if needed. Given the reduced policy risk and more benign overall conditions—and with Asian currencies showing signs of strength—central banks could potentially cut rates before year-end. Such moves could provide additional support for Asian assets, particularly if the US Federal Reserve also opts to ease its policy.

Among the many promising opportunities across Asia, Korea stands out. Following last year’s political upheaval, the new administration put forward major reforms to improve corporate governance. These changes—aimed at strengthening shareholder rights and increasing corporate transparency—have boosted confidence in the country’s stock market. Combined with a stable economic outlook, optimism among investors is high.

Elsewhere, Taiwan’s technology sector is also particularly attractive. The global technology market is currently in an upswing, driving up demand for Taiwanese semiconductors and related products. Despite concerns about tariffs and currency strength, Taiwan’s semiconductor industry remains robust. Continued global demand—especially in areas such as artificial intelligence (AI) and advanced computing—fuels the sector’s growth and positions it for ongoing success.

You can’t discuss generative artificial intelligence without mentioning China and DeepSeek. DeepSeek’s rapid rise earlier this year generated excitement reminiscent of the buzz around OpenAI’s ChatGPT launch in late 2022. DeepSeek’s breakthrough energized innovation across China, reshaping the country’s role in the global AI race. Robust demand for AI and the expanding potential for monetization continue to fuel growth in the sector, driving investment and opening up new opportunities in China’s markets.

There is also positive development on the tariff front in this area. As part of a recent trade bargain, the US lifted its overseas sales ban on advanced AI chips, allowing NVIDIA to resume shipments of its H20 chip—specifically designed to meet US export controls. However, while tariff tensions between the US and China have eased from ‘war’ to ‘truce,’ the risk of a sudden escalation cannot be dismissed. Despite these challenges, our optimistic outlook is anchored in the long-term potential of China’s AI developments.

Beyond semiconductors, trade negotiations between China and the US have had many highs and lows. The initial anxiety over trade issues has substantially eased, and the mood is generally constructive after three rounds of official talks and another 90-day deadline extension.

In the second quarter, China’s economy grew by 5.2%—a result that surpassed expectations, especially in the face of ongoing tariff pressures.⁴ Again, much of this performance can be attributed to businesses accelerating trade shipments. While we expect exports to slow in the third quarter, overall there is less macro headwind now compared to last year.

Given the more subdued growth and ongoing uncertainty around tariffs, Beijing has shifted its attention toward supporting equity markets. In response to the initial tariff shock, authorities quickly implemented measures to strengthen and stabilize capital markets. We expect that the so-called “national team” will remain active in providing support. As a result, we see increasing opportunities for investors in Chinese stocks.

While we maintain a positive outlook on Asia and China markets, it’s important to recognize the risks involved. If US inflation rises more than expected, leading the Federal Reserve to delay interest rate cuts or consumers to stop spending, Asia could experience a more pronounced economic slowdown. For now, most regional exporters have not yet bore the blunt of tariffs as they await the outcome of ongoing trade negotiations. If the US imposes higher-than-expected tariffs or uncertainty persists, it would hurt profit margins and discourage new investments. Pressure on Asian economies would increase, leading to higher market volatility.

Despite Asia representing a large portion of global GDP, it remains underrepresented in equity indexes, making it a compelling area for investment.

Successfully navigating today’s unpredictable markets calls for a sophisticated, active and diversified approach that goes beyond a simple stock and bond allocation. Using a multi-asset strategy across sectors and countries helps uncover different types of opportunities and potentially capture better risk-adjusted returns in the long run.

¹ Source: Bloomberg. As measured by MSCI China, MSCI APAC ex-Japan and MSCI AC World. Data as of 31 Jul 2025.
² Source: Bloomberg. As measured by iBoxx China Real Estate High Yield and Bloomberg Global High Yield Unhedged. Data as of 31 Jul 2025.
³ Source: Bloomberg. As measured by the US dollar index (DXY). Data as of 30 Jun 2025.
⁴ Source: National Bureau of Statistics, China. Data as of 31 Jul 2025.