Game changers

Just months ago, global markets were grappling with an increase in US unemployment, stubborn inflation, and worsening growth momentum in China. At the time, investors’ hopes of a soft landing in the US, proactive rate cuts from the Federal Reserve, and big bang stimulus in China were beginning to look more like a fantasy than reality.

But since then, better-than-expected data have put the US economy on track for a “no landing” scenario—one where inflation is near the Fed’s target, but growth remains at or above trend. The Fed has kicked off its easing cycle with a 50-basis-point interest rate cut, and China could deliver its largest stimulus package in recent years to tackle its deflationary and deleveraging challenges.

These positive economic surprises have ignited a sharp response across global markets. The S&P 500 and MSCI All Country World Index are back at record highs, Asia ex-Japan equities have staged a 9% rally from mid-September lows, led by a 20% rebound in China, and 10-year US yields have climbed back above 4%.

Despite the strong moves, we see more upside across equities if our baseline forecasts of healthy US-led growth, sustained rate cuts, and a stimulus-driven revival in China materialize. Combined with decent earnings growth, we expect these tailwinds to support high-single-digit returns for global and US equities over the next 6-12 months. Asian markets, too, are poised to deliver similarly attractive returns in such an environment.

The US presidential election, on 5 November, poses the biggest near-term risk to our constructive view. Uncertainty could extend beyond Election Day if the outcome is contested or hawkish policies emerge, particularly on tariffs and tech restrictions.

In this month’s Investing in Asia Pacific, we assess whether China’s stimulus package will be enough to reflate its economy, what a “no landing” macro regime means for regional assets, and how to prepare for Election Day risks and beyond.

Written with Mark Haefele, our Chief Investment Officer.

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