Tang views last week's market correction as a healthy digestion of gains accumulated over the past few months. He maintains an overweight stance on China, and recommends a “dividend + growth” strategy for implementation ideas.

Tang attributes two reasons for the correction in the Chinese markets last week. First, while the market had low expectations of the July Politburo meeting, the absence of positive surprises was likely an excuse for investors to take profits. Second, some investors may be concerned about what could happen to the tariff rates after 12 August, when the 90-day trade truce period is over. Tang still expects some consolidation of gains in the next few weeks, especially with the offshore market, considering the strong gains of the Hang Seng Index year-to-date.

However, Tang believes that this should support another trading opportunity later this year, possibly the fourth quarter of 2025, when domestic policies are expected to step up. “Nonetheless, our overweight stance on the market is more driven by the improving bottom-up arguments, even though the top-down macroeconomic challenges have persisted. Notwithstanding the tough business environment resulting in falling revenue growth, companies showed meaningful improvements in their profitability last year driven by efficiency gains,” Tang said. “Meanwhile, Chinese firms are also raising shareholder returns, similar to their peers in Japan and South Korea. In addition, thematic ideas such as artificial intelligence and new consumption are keeping market sentiment buoyant.”

Tang views the offshore China market as another beneficiary of diversification flows out of the US, besides Europe. Mutual funds have added room to narrow their underweights. Mainland Chinese investors also continue to buy Hong Kong-listed stocks through the Stock Connect. For stock implementation, Tang takes a “dividend + growth” approach, in which he screens for dividend stocks with solid potential earnings growth and growth stocks with reasonable valuations.

Southeast Asian equities
With the expiry of reciprocal tariff exemptions on 1 August, the US announced further adjustments to tariff rates. Malaysia’s tariffs for exports to the US were lowered from 25 per cent to 19 per cent. Existing exemptions for semiconductor and pharmaceutical products will remain. Tariffs on Thailand were lowered from 36 per cent to 19 per cent. Both countries made concessions, with Malaysia agreeing to reduce import tariffs on 98 per cent of US imports. Meanwhile, Thailand agreed to grant tariff exemptions on 10,000 import items from the US, reduce non-tariff barriers on US goods and provide a green lane for American companies investing in the renewable energy, semiconductor, and logistics sectors. Thailand has committed to reducing its trade deficit with the US by 70 per cent by 2030. Malaysia’s and Thailand’s GDP growth is expected to take a hit in 2025.

“While the tariff outcome for ASEAN is higher than expected at the beginning of the year, avoiding a much larger reciprocal tariff is still a relief and will remove a key overhang from markets,” Jen-Ai Chua, responsible for equity research Asia at Julius Baer, said. With tariffs collectively for the region below that of China for now and no relative tariff advantage for each country, competition for trade and capital should revert to traditional pre-tariff merit. Chua maintains a neutral view on Malaysian equities and negative view on Thai equities. Going forward, sectoral tariffs, in particular tariffs on semiconductors, could have outsized implications, given their contributions to total exports to the US for Malaysia, Thailand and Singapore. How transhipments are defined and additional tariffs enforced, also remain a source of uncertainty and are issues that bear watching.

India: The worst US tariff rate so far in South Asia
After the higher-than-expected 25 per cent tariffs imposed by the US on Indian goods kicked in on 1 August 2025, Magdalene Teo, fixed income analyst Asia at Julius Baer, thinks the impact on India’s GDP growth should be limited. But growth could be slowed from weaker capital inflows and investments amid dampened sentiment and uncertainty. While low inflation provides room for a rate cut, the Reserve Bank of India (RBI) is likely to opt for dovish comments amid INR weakness.

The Trump administration cited energy and military purchases from Russia and India’s high import barriers as reasons for the tariffs. The US also threatened an extra penalty if India continues to buy Russian oil. Six Indian petrochemical companies will face US sanctions for trading with Iran. The bilateral relationship between the US and India appears to have worsened, with the US imposing a lower rate of 19 per cent to its rival and neighbour, Pakistan, 20 per cent to both Vietnam and Bangladesh, and 19 per cent to Indonesia. The US is India’s largest trading partner, with bilateral trade between them valued at an estimated $129.2 billion in 2024. India is not among the US’s top 10 trading partners. India’s trade surplus with the US is at nearly $46 billion. This has given the US leverage in trade negotiations.

“The timing of the announcement appears to be a pressure and negotiating tactic aimed at unresolved discussion points,” Teo continued. The higher-than-expected tariff could erode India’s export competitiveness. Sectors that may be more exposed include jewellery, pharmaceuticals, textiles, electronics, and oil refiners. The higher tariff will also drag on economic growth, though economists expect the impact to be limited, given India’s relatively closed economy and the fact that its growth is still largely driven by domestic demand. Indian equities fell after the surprise tariff announcement last Thursday, and Indian government bond (IGB) yields also rose before easing.

Indian President Modi has reacted to the tariffs by urging the nation to focus on domestic manufacturing and consumption. While low inflation prompts the RBI to lower rates, a hold is more likely this month owing to INR weakness. The INR is the worst-performing Asian currency year-to-date; the recent announcement has raised concerns over higher import costs.

Teo is not alone in her views. While the direct GDP impact may be modest, Todd McClone, portfolio manager,  Emerging Markets Growth Fund, thinks that the announcement adds to market volatility at a time when global risk sentiment is already fragile. From a sector perspective, McClone believes that the impact will be uneven. Pharmaceuticals, India’s second-largest export to the US, appear to be exempt, which is critical given India supplies ~60 per cent of US oral drugs. Electronics, on the other hand, could face headwinds, but McClone's view is that India still holds a relative edge over China. The services sector, including IT, remains unaffected for now. Despite this headwind, McClone believes that India’s broader outlook is improving.  See more here.