Asian stock markets displayed a mixed performance, influenced by shifting interest rate expectations following a Federal Reserve rate cut and a complex economic outlook in China, characterized by tech sector strength amidst property market weaknesses.

Market Performance Reflects Divergent Pressures

U.S. equities closed higher last week, with global markets, particularly in Asia, displaying a mixed performance as investors processed shifts in interest rate expectations and assessed China's economic health. The S&P 500 continued its ascent to record highs, buoyed by anticipation of a Federal Reserve rate cut.

On Thursday, September 11, 2025, Asian markets showed varied movements. Australia's S&P/ASX 200 dipped 0.34% to 8,800, primarily due to losses in financial and technology sectors, partially offset by strength in mining and energy. Conversely, Japan's Nikkei 225 advanced 0.99% to 44,272, driven by gains in technology stocks such as Advantest and Screen Holdings, with SoftBank notably jumping over 8%. Taiwan and Indonesia also saw gains of approximately 1%, while South Korea and Singapore remained relatively flat.

The sentiment in China and Hong Kong faced headwinds following Mexico's imposition of tariffs up to 50% on over 1,400 Asian imports, a move aimed at protecting its industries from U.S. trade pressures.

Federal Reserve Initiates Rate Reduction

The Federal Open Market Committee (FOMC) on September 17, 2025, executed its first interest rate cut since last December, trimming its benchmark rate by 25 basis points to a new range of 4.00%-4.25%. This decision was largely in response to a softening labor market, despite inflation metrics like August's core Consumer Price Index (CPI) at 3.1% year-over-year and July's core Personal Consumption Expenditures (PCE) at 2.9% year-over-year remaining above the Fed's 2% target.

The market had largely priced in this move, with CME Group's FedWatch Tool indicating a 92.1% probability of a quarter-point cut prior to the announcement. This dovish shift is expected to exert downward pressure on the U.S. dollar and reduce global financing costs. Post-announcement, Japan's Nikkei 225 responded positively, rising 2.13%, though the Topix index experienced a slight dip of 0.4% due to export declines and U.S. tariff pressures. South Korea's Kospi index, however, fell 0.75%, highlighting vulnerabilities in export-dependent economies. The Ten-year Treasury Yield saw a marginal -1 basis point change to 4.02%, and Bitcoin gained 0.8% to reach $116,459.

China's Dual Economic Narrative: Tech Momentum Against Property Weakness

China's markets presented a complex picture, showcasing robust performance in specific sectors while grappling with persistent structural challenges. Foreign investors are increasingly re-engaging with Chinese equities, particularly in artificial intelligence (AI), semiconductors, and biotech, viewing them as crucial for diversification. This renewed interest propelled the Shanghai Composite Index to a decade high last week, with Hong Kong's benchmark reaching a four-year peak.

On September 17, Hong Kong's major stock indices surged. The Hang Seng Tech Index soared 4.22% to close at 6,334.24 points, with the Hang Seng Index climbing 1.78% and the Hang Seng China Enterprises Index gaining 2.24%. Large-cap technology stocks were primary drivers, with Alibaba and JD.com each rising over 5%, and Meituan, Kuaishou, Tencent, Xiaomi, and NetEase all posting gains. Notably, Baidu Group surged over 15% following an upgrade of its American Depositary Receipts (ADRs) from 'Sell' to 'Buy' by Arete Research analysts, citing significant potential in its chip business. Semiconductor stocks also performed strongly, with FORTIOR rising over 17% and SMIC gaining over 7%.

Despite this optimism in high-tech sectors, underlying economic data reveals challenges. China's property sector continues its prolonged downturn, with investment falling 12.9% year-on-year in the first eight months of 2025. New construction starts plummeted 23%, and foreign direct investment (FDI) declined 13.2% in the first five months of the year. August factory output and retail sales data underscored sluggish domestic demand, and deflationary pressures remain a concern. While Beijing has introduced measures to stem FDI outflow and support the sector, significant structural issues persist.

Broader Asian Monetary Policy and Future Outlook

Beyond the U.S. Federal Reserve, other Asian central banks have also been proactively cutting interest rates. Countries like Indonesia and New Zealand have surprised markets with aggressive monetary easing stances to counter economic pressures stemming from U.S. tariff measures. Nathan Sheets, Chief Economist at Citigroup, articulated this regional trend, stating, "The obvious answer is to ease monetary policy outside the US." Analysts expect further rate cuts across the region, with projections for the Philippines to see a combined 1.25% reduction and South Korea, Thailand, Australia, Malaysia, and Taiwan each anticipating a 0.50% reduction.

Everbright Securities has noted that with the mainland economy showing signs of recovery and increased policy support, both the A-share and Hong Kong markets are demonstrating strong rebound momentum. Major financial institutions have also raised their target levels for the Hong Kong stock market, signaling significant upward potential, particularly for H-shares due to their higher sensitivity to Fed rate cuts.

Looking ahead, investors will continue to monitor the trajectory of global interest rates and the effectiveness of China's policy interventions in translating high-tech sector growth into broader economic benefits. The interplay between global monetary policy adjustments, geopolitical trade dynamics, and China's internal economic rebalancing will likely dictate market sentiment and volatility in the coming weeks.