Multi-Asset Outlook — August 2026

Global market volatility remains elevated as investors digest persistent inflation, high U.S. Treasury yields, and uncertainty surrounding the Federal Reserve’s policy path. Equity market sentiment has also become more cautious and selective, with investors increasingly focused on earnings visibility and the sustainability of corporate profitability.

In the China and Hong Kong markets, weak domestic demand and overly concentrated market positions remain headwinds, while trade tensions related to the technology sector have added to market uncertainty. In Asia, recent deleveraging has eased some overcrowded positions, but concerns over high valuations in tech stocks, a sharp rise in capital expenditure, and potential peaking of profit margins may keep market volatility elevated. In comparison, the market environments in India and Japan are relatively more favorable, while Latin American markets are starting to appear overvalued after their recent strong performance.

Demand for fixed income investments remains robust, particularly for Asian investment-grade and emerging market bonds. However, tight credit spreads and elevated U.S. Treasury yields imply that duration positioning should remain prudent. Asian high-yield bonds continue to show resilience, but potential spillover risks from stress in U.S. private credit and high-yield markets remain a key concern.

Gold has recently resumed its upward trend, supported by relatively low market positioning, expectations of a potential future weakening of the U.S. dollar, and continued central bank purchases. Overall, rising correlations across asset classes further underscore the importance of diversification; amid an environment still fraught with uncertainty, income generation from assets continues to be a key contributor to portfolio returns.

China / Hong Kong Equities

– Following the U.S. Federal Reserve's July FOMC meeting, U.S. Treasury yields have remained elevated. The committee voted 9-3 to hold rates steady. Notably, all three dissenting members favored an immediate rate hike, reflecting a rare hawkish split within the Fed on interest rate policy.

– This situation has raised market concerns about the Fed’s credibility. Given that oil prices have retreated from their July highs and labor market data show signs of softening, we believe the likelihood of a rate hike in September remains low. However, uncertainty around the timing of future hikes persists, and persistently high inflation could keep bond yields elevated, limiting upside potential in equity markets.

– U.S. corporate earnings for Q2 have largely exceeded market expectations so far. However, compared to earnings growth, the market appears to place greater emphasis on earnings sustainability and visibility, signaling a shift in investor sentiment relative to the Q1 earnings season. In addition to closely monitoring incoming economic data, the market is also expected to pay close attention to Kevin Warsh’s speech at the Jackson Hole central bank symposium for clues on the Fed’s future policy direction.

– Hong Kong financial stocks have faced recent pressure, mainly due to reports that China may impose taxes on overseas insurance income, sparking market concerns that mainland funds could face stricter controls when investing abroad. Meanwhile, macroeconomic data for both China and Hong Kong have weakened, reflecting a still-soft overall macro environment, particularly in terms of domestic demand.

– Benefiting from a rotation of funds from tech stocks into value stocks, markets rebounded in July, lifting overall valuations back toward historical averages. Looking ahead, further market gains will likely require more tangible improvements in corporate earnings fundamentals and the broader macroeconomic outlook.

China A-Shares

– Tech sector positions were highly concentrated, and margin trading levels were elevated. When the global AI rally reversed in July, it triggered significant unwinding of AI-related Chinese A-shares. However, during this period, the 'national team' stepped in to support the market, helping to stabilize the downturn.

– Although some overly crowded positions have since been unwound, margin balances remain high. With no clear signs of recovery in other sectors yet, capital is beginning to refocus on the tech sector, implying that market volatility could stay elevated amid continued position concentration.

– Meanwhile, tensions between the U.S. and China over technology-related import and export restrictions are escalating. With President ** expected to visit the U.S. in September, both sides appear keen to secure stronger negotiating leverage ahead of the trip.

Asia (ex-Japan) Equities

– Following a significant deleveraging trend in the technology sectors of South Korea, Taiwan, and Japan, markets experienced a relief rally on the last trading day of July. However, the current rebound remains fragile.

– Although corporate earnings for Q2 have so far been robust, the market is increasingly focused on whether companies can achieve sustainable margin expansion rather than pursuing growth alone. Meanwhile, concerns persist over elevated capital expenditures—not only among cloud service providers but also extending to hardware companies—primarily driven by fears of potential overcapacity.

– Market volatility in South Korea remains elevated. Although the deleveraging process appears largely complete, investors are growing increasingly concerned that margins in the memory sector may be nearing a peak; heightened market swings have also eroded investor confidence, suggesting it may take some time for sentiment to recover.

– India has started to see some foreign capital inflows returning. Following the market correction in July, institutional investors are increasingly favoring diversification across countries and sectors rather than maintaining concentrated exposure to tech stocks. India's macroeconomic backdrop has also improved, and further declines in oil prices are expected to provide additional support to Indian equities.

– Meanwhile, following authorities’ intervention to support the yen, market participants are increasingly expecting the US dollar to have peaked. The market interprets this as a signal from US Treasury Secretary Bessent that an excessively strong dollar is undesirable—a development that could create a more favorable investment environment for India and ASEAN markets.

Emerging Market (ex-Asia) Equities

– Benefiting from a rotation of market funds from growth to value stocks, Latin American equities outperformed Asian markets within emerging markets in July. However, following recent gains, local market valuations now appear stretched, and persistently high US Treasury yields may limit further upside in the near term.

Japanese Equities

– The coordinated intervention by the Bank of Japan and the US Treasury to support the yen marks a historic development, reflecting the US desire to avoid excessive dollar strength and to prevent additional upward pressure on US Treasury yields.

– This intervention has also shifted market expectations, particularly because short positions on the yen had previously become highly one-sided, and carry-trade positions had again risen to historic highs. As a result, the intervention may begin to alter market views on the yen’s trajectory.

A more stable USD/JPY exchange rate is expected to create a healthier market environment for Japanese equities. Markets now anticipate the Bank of Japan will hike rates again in October, earlier than the previously expected December. Meanwhile, strong corporate earnings in Q2 have provided further support to the market.

Asian Investment-Grade Bonds

Following the July FOMC meeting, U.S. Treasury yields have remained elevated after the committee voted 9-3 to hold rates steady. Notably, all three dissenting members favored an immediate rate hike, reflecting a rare and pronounced hawkish divergence within the Fed, which has raised questions about the central bank’s credibility. Against this backdrop, investors continue to favor the short end of the yield curve.

On the other hand, demand for Asian investment-grade bonds remains robust. With new issuance in the region staying limited, credit spreads on Asian investment-grade bonds have narrowed below those of U.S. investment-grade bonds, largely due to continued heavy bond supply from large U.S. cloud computing providers, while new issuance in Asia remains relatively constrained.

Asian High-Yield Bonds

Amid low new issuance, credit spreads on Asian high-yield bonds remain well below historical averages. However, risks from the U.S. high-yield market—particularly rising default risks and widening credit spreads, as stress begins to emerge in private credit and bank loans—remain key concerns. On the other hand, falling oil prices could offer some relief to ASEAN bond issuers.

Emerging Market Bonds

Credit spreads on these bonds remain tight, and with U.S. Treasury yields staying elevated, investors are expected to remain cautious about duration positioning. However, strong investor demand should help keep emerging market bond credit spreads relatively stable.

Gold

After two months of consolidation, gold and other precious metals have begun to break out upward on technical charts. Retail investor deleveraging and associated selling pressure appear largely complete, and current positioning among both institutional and retail investors remains relatively low.

Expectations that the U.S. dollar may have peaked, concerns over the Fed’s credibility, and continued central bank gold purchases are expected to provide further support for gold prices. Notably, the Bank of Korea bought gold in July for the first time in 13 years.

Multi-Asset

– Multi-asset strategies offer lower volatility compared to single-asset or traditional balanced portfolios. However, correlations among risk assets—such as equities, corporate bonds, and commodities—have risen significantly recently. Given the current market environment characterized by heightened uncertainty, stable sources of return will become a key driver of investment performance.

Source: Bloomberg, as of July 31, 2026.

Learn more about Value Partners’ latest multi-asset outlook: Value Partners | Multi-Asset Outlook — August 2026

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