Eastspring Investments
Oct 2025 | 5 min read
Summary
Growth in the United States and East Asia is likely to slow over the next several months before policy stimulus drives a rebound in early 2026. The Fed is almost certain to cut the Fed Funds rate by 25 basis points (bps) at its October meeting, and we expect another 25bps cut in December. In Asia, we expect several central banks to cut rates further this year and in the first half of 2026. The positive impact of these cuts on Asian economies and earnings should extend into the second half of 2026. Eastspring’s Multi-Asset Portfolio Solutions (MAPS) team continues to hold a broadly positive view on risk assets in the near term, as the economic data remains supportive, looking out till the end of 2025.
Macro: Growth to slow in coming months before policy stimulus drives a rebound in early 2026
In the US, the recent stall in employment growth, the short-term impact of the Federal government shutdown and the steadily rising cost of tariffs are likely to slow Gross Domestic Product (GDP) growth into the fourth quarter of 2025 and the first half of 2026. That said, the reversal of the shutdown effects in the first quarter of next year and the lagged positive impact of likely Fed cuts of 25bps in October and December should provide some partial offsets. Corporate guidance suggests continued growth in business spending on data centers and related power infrastructure over the next several quarters, albeit at a moderating pace. This should support tech-related exports from Korea, Singapore, and Taiwan.
Japanese GDP growth is similarly likely to stall in the third quarter and remain weak in the fourth as exports and industrial production weaken. However, leading indicators point to a rebound in exports later this year and continued growth in business investment. Japan’s new prime minister is expected to boost fiscal stimulus in 2026.
The recent rollover in China’s credit and money growth signals continued weakness in retail and industrial activity that began in July. The government has responded with a 500bn yuan policy bank loan facility that will lean against this slowing, but we still expect lower GDP growth in Q4. Guidance on new stimulus that emerges from the December Economic Work Conference will be key to the 2026 outlook. We expect the government to target GDP growth of at least 4.5% next year if not closer to 5%. New stimulus is likely to focus on subsidies for consumption and support for industrial investment, particularly in tech.
Indian activity indicators look to be at a tentative turning point and should gain momentum in early 2026. The government has begun implementing several fiscal stimulus initiatives including the Goods and Services Tax (GST) rationalisation as well as personal tax cuts that should aggregate to 1.0% - 1.3% of GDP. India’s central bank is likely to ease monetary policy further in December.
ASEAN’s economies benefit much less from the AI infrastructure boom, but monetary policy easing has stepped up in Indonesia and the Philippines while fiscal policy is likely to stimulate a consumption recovery in Thailand. This stimulus should prevent economic growth from slowing too much in 2026, while shifting the growth driver from exports to domestic demand, particularly consumption and some property market reflation.
Asset Allocation: Near-term optimism on risk assets; more caution in the longer term
Both equities and fixed income have had an incredible run so far in 2025. Europe, Asia Pacific ex Japan, Japan, Emerging Markets (EM) alongside the US have posted double digit equity returns. Consequently, equity valuations appear much more stretched now, compared to the beginning of the year.
Eastspring’s Multi-Asset Portfolio Solutions (MAPS) team continues to hold a broadly positive view on risk assets in the near term, as the economic data remains supportive, looking out till the end of 2025.
The team’s relative tilt towards the EM and Asia complex is supported by their positive sentiment around India’s economic outlook. Expectations of improved earnings growth, declining inflation and potential rate cuts on the horizon paint a relatively favourable view. China is the other major market that the team is monitoring - the October Politburo and 4th Plenum meetings will likely inform their views for the market and region looking ahead.
Beyond 2025, the MAPS team is taking a more neutral stance on the back of valuation concerns and is closely watching for signs of weakness in the US, particularly in the employment data.
This is an extract from our Q4 2025 Market Outlook. Click here to download the full report which includes a special feature “Another wave of government stimulus across Asia”.
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