“Late last year, the market was pricing in six cuts for 25 basis points. Yet inflation is still sticky in the US. [For the] fourth year running, we’re going to be above 2%,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International during an interview with Paperjam on 25 September. He thinks that it has prompted a more cautious Federal Reserve, which is now expected to deliver perhaps only one more rate cut this year. This is a hawkish view compared to the market, which expects two more cuts. “You’ll have a new Fed chair; whoever it is, he is going to be cutting rates, so accommodating that inflation issue.”

Ahmed noted that, while the labour market is showing some signs of slowing, particularly in payrolls data, other metrics are not as clearly confirming this trend. “Inflation is not surprising to the downside. It’s coming on expectation. The expectation is that it is above the target.”

Trade wars connected to currency wars

Ahmed observed that an anticipated narrow trade war focused on China morphed into a “US versus the rest” scenario, with widespread tariffs affecting nearly every country. This policy shift triggered a significant 10% depreciation of the US dollar despite several central banks, including the European Central Bank, cutting rates “to protect themselves.”

This dollar decline is now viewed as a multi-year trend. It was propelled by high US fiscal deficits, a global move towards more dovish central banks that tolerate inflation overshoots, and a general trend of diversification away from the dollar by other nations. The US government’s own policies are seen as aggressively seeking a weaker currency.

As a result, a notable shift in investor behaviour is occurring: “They are increasingly differentiating US equity risk from foreign exchange (FX) risk.” This means international investors might remain bullish on US assets, like AI stocks, but simultaneously hedge against or dislike the dollar itself, a strategic split driven by US policy and global economic pressures.

China: pre-emptively acted ahead of the trade war

Ahmed noted that, despite the intense trade war, the “China activity indicator” has been “very stable” in 2025 because of easing fiscal policies, credit stimulus and overall global stability. Historically, significant shocks were generally accompanied by a sharp fall in the indicator.

On the other hand, said Stuart Rumble, head of investment directing, Asia Pacific, at Fidelity. “[the Chinese government] is not looking to seriously lean into previous drivers of growth, in terms of export growth. They understand there are limits to that.”

Return of animal spirit… yet not broad-based

Rumble thinks that the Chinese government’s focus is on economic stabilisation rather than aggressive reflation of the property market. He believes that the equity market has rallied, driven by a confluence of factors: better-than-expected macro data, a reminder of Chinese innovation in areas like AI, and technical factors like government encouragement for institutions to buy domestic equity. This rally has not been backed by broad-based earnings growth, which has been strong in tech (e.g. Alibaba, Tencent) but has seen downward revisions for the rest of the market.

For investors, Rumble stressed, this means that being more selective is crucial. While valuations have risen, they remain appealing, especially for diversification away from the US. Key opportunities lie in structural themes like tech and consumer stocks. “Meta trades on 25 times earnings, versus Tencent on 15 times earnings.”

Some specific areas show promise, such as health-conscious consumers buying sportswear from brands like Anta and Xtep. “I should make the distinction between those that are more inward-facing compared to those exposed to the world.” He remarked that global brands still have pricing power and that Xtep sponsors the “largest number of marathon runners in the world.” Global brands listed in Hong Kong, like Samsonite, also offer value, though he admitted that they are affected by sentiment overhang from tariffs, as their products are made in China. “When we're speaking to these companies, [they reported] their ability to pass on those costs to US importers.”

AI trickling down to the rest of the economy?

“Once you get a new technology in China, 100 players start to come into the market and start competing; that really helps to foster adoption, and we’re seeing it across a multitude of different areas,” stated Rumble. For instance, companies like trip.com, the largest travel agency in Asia, is using it to enhance services and cut costs.

“To be successful [in Asia], you want AI to be embedded in the ecosystem.” Rumble  commented that companies such as WeChat and Tencent prefer to own their AI models that they have customised as per their needs. For instance, Tencent is developing AI to improve the quality of their games.

Beyond China: countries below the radar screen

Rumble remarked that Indonesia also presents a contrarian investment opportunity. Despite political and economic concerns--such as a new president centralising power and populist policies--“depressed valuations” for quality companies like banks or cement companies are appealing for long-term investors focused on drivers like growth, demographics and rising wealth.

A broader theme across Asia is improving corporate governance and shareholder returns. South Korea’s "value up" programme is empowering minority shareholders. “It has already resulted in a little bit of a rerating across Korean companies. But you have to kind of scratch under the surface because Samsung and Hynex have obviously really sort of dragged that up.”

He noted that Southeast Asian countries, including Indonesia, are looking to enact similar reforms to improve competitiveness and the management of state-owned and private enterprises. “Hopefully over time, [it may result into] improvement of return on equity, which means that they can return more of that to investors, hopefully, through increasing dividends.”