• U.S. interest rates, China growth, the Japanese yen, and the manufacturing export cycle continue to influence Asian assets.

• We observe positive tangible progress in most of these factors but believe an Asia asset rally revival will be contingent on U.S. rates and balanced global growth.

While renewed concerns around higher U.S. rates have pressured markets lately, several factors could help revive an Asian asset rally in 2024. The clearest tailwind comes from the boost to the region’s economies from a recovery in export demand, particularly in tech goods. Other factors have been less strong, but in aggregate, remain supportive of market sentiment towards Asia. China’s authorities have rolled out measures to support housing, a sector at the center of the country’s growth challenges. The Bank of Japan has been taking steps towards monetary policy normalization, including support for its currency. These four factors – the export cycle, China growth, the Japanese yen, and U.S. interest rates – constitute the Sum of All Fears framework we developed to understand the prospects for Asian markets.

Of the four drivers of Asian performance, the continued improvement in the tech-led export cycle has been the brightest spot (see Figure 1). Exports from Korea jumped by a double-digit annual rate in April (+13.8%); shipments of semiconductors soared 56.1% from a year earlier, up from 35.7% in March. Taiwan exports were 4.3% higher in April compared to 2023, the sixth consecutive monthly gain. Chinese exports, meanwhile, rose an estimated 14% in volume terms during the first quarter. These positive trends reflect the impact from the tech capex cycle in developed markets, as well as much improved inventory levels; in other words, demand is now rising in areas that benefit Asia’s tech-centric manufacturing the most.

While the Federal Reserve (the “Fed”) set a high bar for a resumption of interest rate hikes, the rate cutting cycle has once more been delayed due to persistent inflation above the official 2% target. Even though U.S. 10-year yields slipped on disappointing economic data recently, a combination of weak U.S. Treasury auctions and hawkish Fed-speak drove 10-year yields above 4.6% last month. Moreover, the December 2024 Fed fund futures have returned to levels seen in early May, pricing just ~1.5 cuts for the year (see Figure 2).

Sharp yen depreciation was met with intervention, limiting the risk of overshooting. Japanese policymakers recently stepped in to prop the yen up from a multi-decade low of ¥160 to the dollar, signaling their discomfort with excessive currency weakness. While interest rate differentials and strong U.S. growth are likely to keep pressuring the yen going forward, policymakers have put a floor on the yen by providing some clarity on the conditions that may trigger additional intervention.

Shifts in the yen and renminbi relative to the dollar play a significant role in shaping Asian currency markets. The People’s Bank of China (the “PBOC”) continues to support stability with relatively steady USD/CNY onshore fixes, while allowing some modest weakening in its trade weighted China Foreign Exchange Trade System basket. Markets will remain particularly sensitive if key levels on USD/CNY are breached, especially given growing noise surrounding trade tariffs, and it is incumbent upon the PBOC to defend these levels.

China’s policymakers took more assertive action to support the housing market, hinting at a shift from the timid, piecewise approach to tackling the sector’s imbalances. The moves, in turn, allowed markets to price out the left-tail risk of a growth relapse. The policy response occurred along two main channels: demand-side measures to support sentiment and confidence, as well as an affordable home re-lending facility.

To help buoy demand, the government reduced mortgage rates and down payment ratios while local governments relaxed home price restrictions surrounding second and third property purchases. The more innovative supply side measure that caught the market’s attention was a RMB 300 billion affordable home re-lending facility from the PBOC, which, with participation from national banks, will amount to RMB 500 billion of total loans. These funds will be disbursed to local governments and state-owned-enterprises for the purchase of unsold residential and commercial inventory from developers to be used for social housing. By demonstrating a willingness to mitigate risks by putting a floor on property sales, the government, with the help of further easing in homebuying restrictions, could see some stabilization in the housing market in the coming months.

Just as Asia started to regain its footing in 2024, higher U.S. inflation and interest rates in May put pressures on Asian and global markets anew. Aside from U.S. inflation relief, a more market-friendly external backdrop could potentially materialize in the form of balanced global growth, which might mitigate the impact of U.S. exceptionalism that drives rates and the USD higher. Encouragingly, growth in the European Union, Asia’s largest export market, has looked better in recent weeks – an improved growth trajectory in the European Union will likely bolster Asian exports. Furthermore, the recent measures taken by China regarding its property sector have, at the very least, constrained the potential downside of the country’s growth prospects. Finally, the onset of European Central Bank rate cuts could help offset some of the pressure on Asia’s FX markets. If these factors strengthen in coming weeks, they could begin to form the basis of a renewed rally in Asian markets in 2024.


Vincent Low


Vincent has over 30 years of experience in covering global macroeconomics and markets. He is responsible for formulating investment ideas with PMs, strategists, and equity analysts and developing macro investment themes and processes for TRG’s public markets business. Prior to rejoining TRG, where he was previously CEO of its Singapore office and an Executive Committee member, Vincent held the role of Advisor to the Economics Policy Group at the Monetary Authority of Singapore. He also held roles as the Head of Currency and Fixed Income Strategy at Merrill Lynch, and Senior Economist for Southeast Asia at J.P. Morgan and Standard Chartered Bank. Vincent started his career at the Monetary Authority of Singapore in 1987 and received a Bachelor of Social Sciences in Economics from the National University of Singapore.

Luis Arcentales


Luis has over 20 years of experience in covering global macroeconomics and markets. He is responsible for formulating market strategy at TRG. Prior to joining TRG, he had a short stint as an independent macro researcher following a nearly two-decade career at Morgan Stanley in New York. In his role as Senior Economist, his primary focus was developing the macroeconomic and political outlooks for countries in Latin America, in addition to publishing on topics ranging from the business cycle to trade dynamics for the region. Luis started his career as an equity strategist at McGlinn Capital, a value-oriented asset manager in Pennsylvania. He holds an MS in Economics and a BA in Industrial Engineering from Lehigh University; he sits on the board of Lehigh’s Martindale Center for the Study of Private Enterprise and is a CFA charter holder.


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