The direction of US monetary policy remains a key source of uncertainty. Minutes from the September Federal Open Market Committee (“FOMC”) meeting indicated that a further rate increase before year-end remains possible. However, Chair Warsh has declined to commit to a path, identifying the October and December meetings as the key decision points. Ahead of the next FOMC meeting on 27–28 October, the International Monetary Fund has cautioned that uncertainty over US monetary policy could keep Asian financial markets volatile. The recent sell-off has also brought the financing of AI investment into sharper focus. Chair Warsh noted that large technology companies raising funds in the bond market are adding to competition for capital. In our view, investors are likely to place greater scrutiny on the returns these companies generate from their AI spending. Developments in the Middle East remain a key swing factor for oil prices and inflation. Before the conflict began in late February, the Strait of Hormuz carried around one-fifth of global oil supply.
Within Asia, the most significant development has been in Indonesia. On 15 October, index provider MSCI Inc. launched a consultation on reclassifying Indonesia from Emerging Market to Standalone Market status, citing insufficient progress on market transparency, concentrated shareholdings and weak enforcement. This contrasts with FTSE Russell, which reaffirmed Indonesia’s emerging market status. The Jakarta Composite Index fell 8.0% following the announcement, which triggered a trading halt. MSCI has also frozen certain index changes for Indonesian securities, including new additions, until further notice. The announcement adds to a difficult year for Indonesia, whose stock market has fallen more than 30% to become the world’s worst performing this year, according to Bloomberg, while Moody’s and Fitch have both revised the sovereign rating outlook to negative. With the consultation open until 30 April 2027, analysts expect foreign outflows to continue.
In North Asia, the October sell-off highlighted how exposed South Korea and Taiwan have become to swings in AI sentiment after very strong gains over the past year. The KOSPI and TAIEX rose 86.7% and 80.6% respectively over the past year, and the TAIEX’s price-to-earnings ratio has expanded to 27.9 times from 23.1 times. Singapore again demonstrated its defensive qualities, with the Straits Times Index declining only 0.5% on 15 October, a far smaller fall than its North Asian peers.
Overall, investor sentiment has shifted from chasing AI momentum towards greater caution on valuations, funding costs, and geopolitical risk. In this environment, we remain focused on businesses with strong balance sheets, sustainable earnings and pricing power, which we believe are better positioned to navigate persistent inflation and energy price shocks. We continue to apply a disciplined, bottom-up approach to stock selection and to maintain diversification across geographies and themes.