Asia-Pacific markets mostly climb as investors assess a possible thaw in U.S.-China trade war

Asia-Pacific markets mostly rose as investors reacted to signs of a potential easing in U.S.-China trade tensions. Key developments include:

Gains in the market: Major indices in the region gained, including the Nikkei 225 in Japan, the S&P/ASX 200 in Australia, and the KOSPI in South Korea. On the other hand, Chinese markets displayed cautious optimism. Hopes for a thaw in the trade war were raised by reports of potential tariff reductions and renewed trade talks between Washington and Beijing. To reduce inflation, the United States is considering lifting some tariffs on Chinese goods imposed by Trump. China's Policy Support: Beijing's recent stimulus measures, such as spending on infrastructure and easing monetary conditions, helped regional markets as well. Fed Policy Impact: Investors remained watchful of U.S. inflation and Fed rate hike expectations, which could influence global risk appetite.

Currency Movements: The yuan and yen saw slight strengthening amid improved risk sentiment.

While optimism grew, analysts cautioned that structural trade disputes remain unresolved, and further developments are needed for sustained market gains.

Performance of the Market in the Region 1. China and Hong Kong Markets Rise on Trade Optimism

China’s Shanghai Composite Index and the Shenzhen Component both posted modest gains, supported by expectations of reduced trade tensions. Reports of potential tariff rollbacks by the U.S. and China’s willingness to increase purchases of American agricultural goods contributed to the upbeat mood.

Hong Kong’s Hang Seng Index also climbed, with tech and financial stocks leading the charge. Tencent and AIA Group, two companies with a lot of exposure to U.S. markets, saw significant increases as investors bet on better trade relations. 2. Despite inconsistent data, Japan's Nikkei rises. The Nikkei 225 in Japan gained a little, but gains were capped by mixed economic data. Concerns about weak domestic consumption and a stronger yen limited the index's advance, despite trade optimism lifting export-heavy stocks like Toyota and Sony. Investors remained wary of global economic headwinds, including potential supply chain disruptions, despite the Bank of Japan's (BOJ) continued dovish stance providing some support. 3. South Korea’s KOSPI Benefits from Chip Sector Strength

Due to strong performances in the semiconductor industry, South Korea's KOSPI performed better than many of its peers in the region. Samsung Electronics and SK Hynix gained as chip demand outlook improved amid easing U.S.-China tech restrictions.

Additionally, Seoul’s export data showed resilience, further boosting investor confidence in the trade-dependent economy.

4. Australia’s ASX 200 Lags on Commodity Weakness

Australia’s ASX 200 underperformed, weighed down by declines in mining and energy stocks. Falling iron ore and coal prices hurt major players like BHP Group and Rio Tinto, while concerns over China’s property sector slowdown added to the pressure.

However, financial stocks provided some support, with the Big Four banks posting modest gains amid stable interest rate expectations.

5. Southeast Asian Markets Show Mixed Reactions

Singapore’s Straits Times Index (STI) edged higher, supported by banking and real estate stocks.

India’s Nifty 50 and BSE Sensex were flat as investors awaited key economic data and corporate earnings.

Taiwan’s Taiex rose on strong tech exports, particularly in semiconductors.

Factors Driving Market Sentiment

1. U.S.-China Trade Relations Show Signs of Thawing

Recent diplomatic engagements between Washington and Beijing have fueled speculation that both sides may ease trade restrictions. Reports suggest that the U.S. is considering lifting some tariffs on Chinese goods, while China may increase purchases of U.S. farm products.

However, skepticism remains, given past breakdowns in negotiations. Investors are closely watching upcoming high-level talks for concrete progress.

2. Federal Reserve Policy Outlook

The U.S. Federal Reserve’s stance on interest rates continues to influence global markets. With inflation showing signs of cooling, expectations of a slower pace of rate hikes have supported risk assets. However, any hawkish signals could quickly reverse gains.

3. China’s Economic Recovery Remains Uneven

While China’s post-pandemic reopening has boosted some sectors, challenges persist in real estate and domestic consumption. Investors are monitoring stimulus measures from Beijing to gauge whether they will be enough to sustain growth.

4. Geopolitical Risks Linger

Beyond trade, tensions over Taiwan, technology restrictions, and U.S.-China military posturing remain wildcards. Any escalation could trigger renewed market volatility.

The Future of the Asia-Pacific Market The near-term trajectory of Asia-Pacific markets will depend heavily on:

Progress in U.S.-China trade talks – A tangible easing of tariffs would boost export-driven economies.

Central bank policies – The Fed, BOJ, and other regional banks’ decisions will impact liquidity and currency stability.

China’s domestic stimulus – Further policy support could revive investor confidence in Chinese equities.

Potential Risks

Re-escalation of trade tensions – Any setbacks in negotiations could trigger sell-offs.

Global recession fears – Weak demand from the U.S. and Europe may hurt Asian exports.

Stronger U.S. dollar – A resurgent dollar could pressure emerging market currencies.

Conclusion

Asia-Pacific markets mostly climbed as optimism over a potential thaw in U.S.-China trade relations lifted investor sentiment. However, the gains were uneven, with commodity-heavy markets like Australia lagging while tech-driven economies like South Korea and Taiwan outperformed.

Short-term hopes of lowering trade barriers helped, but structural issues like China's uneven recovery, geopolitical risks, and tightening global monetary policy remain major concerns. Investors will need to stay vigilant for further developments in trade talks and economic policies to gauge whether the current rally can be sustained.

The Asia-Pacific markets saw a mostly positive trading session as investors reacted to signs of a potential easing in the long-standing U.S.-China trade war. Market sentiment was boosted by hopes of improved trade relations between the world's two largest economies, which resulted in gains across major regional indices. However, lingering uncertainties kept some investors cautious, preventing a full-scale rally.

For now, cautious optimism prevails, but the region’s markets remain highly sensitive to shifts in U.S.-China dynamics and broader macroeconomic trends.

IMF cuts Asia growth forecast

From a previous prediction of 4.6%, the International Monetary Fund has lowered its Asia economic growth forecast to 3.9% in 2025. Uncertainty surrounding trade policy is a major headwind for the region, Krishna Srinivasan, the IMF’s Asia and Pacific Department director, told reporters Thursday.

However, Srinivasan noted the central banks in the region have some scope to ease monetary policy that can help protect against some of the damage from trade policy.

— Hakyung Kim