Fed Rate Cut Prompts Surprising Response Overseas
Here’s how international markets are moving after the U.S. rate cut. But investors are also reacting as central banks in Indonesia and Japan make their own unexpected moves.
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For China plays and Southeast Asian stocks, it’s a case of “Sell on the news” in response to the U.S. interest-rate cut, as well as a surprise cut in Asia. But other Asian markets are generally moving higher as U.S. monetary policy shifts into a more accommodating mode.
Hong Kong is the overseas market most directly affected by the first U.S. rate cut of this year, since Hong Kong pegs its currency to the U.S. dollar. That means it “imports” U.S. rates.
With Japan stocks hitting all-time highs, and Hong Kong stocks cresting to a 35.3% gain so far in 2025, we already had an earlier case of “Buy on the rumor.” Or can you call it a rumor when the cut was so clearly telegraphed?
Jakarta Surprise
We have had a surprise on interest rates in Asia. Indonesia cut rates on Wednesday in a shock move, all 31 economists in a Reuters poll expecting the central bank to stand pat. But instead Bank Indonesia trimmed rates by 25 basis points to 4.75%.
That sent the Indonesia Stock Exchange Composite Index to an all-time high, up 0.85% to a record close at 8,025 on Wednesday. Easing inflation has allowed the central bank to trim rates by 125 basis points this year. Jakarta stocks are 0.2% lower Thursday, however, joining most markets in Southeast Asia in giving ground.
You’ll recall that Indonesia has been beleaguered by political turmoil since the end of August. Protests against increased perks and pay for politicians turned deadly in the worst unrest in Jakarta in decades. The government has walked back some of the changes, as well as introducing a US$985 million stimulus package intended to boost household consumption and create jobs.
Investors are rewarding something approaching stability on the political level. The rate cuts will likely propel Jakarta stocks higher longer-term.
Hong Kong Down Despite 'Imported' Rate Cut
Investors clearly bought into the rally in anticipation of the U.S. Federal Reserve’s decision to trim rates by 25 basis points. Mainland China stocks have been gaining ground in the last month on the early-moving Hong Kong market, with Hong Kong’s 35.3% advance outdone in Asia only by the 44.3% leap to date in 2025 for South Korea’s Kospi.
Thursday, we are seeing the Hang Seng Index, the Hong Kong benchmark, end the day down 1.4%. Mainland stocks are also lower, with the CSI 300 index of the largest listings in Shanghai and Shenzhen down 1.2%. The Nasdaq-like ChiNext Index is off a steeper 1.6%.
China tech names are taking their lead from Nasdaq, which moved 0.3% lower on Wednesday, while the S&P 500 slipped 0.1%. Asian investors do see some joy out of the 0.6% lift in the Dow Jones Industrial Average from the day before.
The Nikkei 225 in Japan is often compared to the Dow, since it captures the performance of blue-chip multinationals. It’s up 1.2% Thursday, well ahead of the broad-market Topix with its 0.4% advance. The Topix skews more to domestic Japan plays.
We saw sizable moves higher Thursday for chipmaker Tokyo Electron TOELY (T:8035) and chip-testing equipment maker Advantest ATEYY (T:6857), both up 5.0% on Thursday.
Electronics and entertainment conglomerate Sony Group SONY (T:6758) rose 3.9%. That extends a strong run over the last year, with the “Japan Inc.” stalwart up 34.3% in 2025, and 73.0% in the last 12 months. The conglomerate has beaten estimates pretty handily each of the last four quarters, and both its videogame and music sales look strong.
BOJ to Deliver Decision on Friday
Japan’s central Bank of Japan (BOJ) is holding a rates-decision meeting of its own. That will end on Friday. It is the rare exception of a central bank that is looking to raise interest rates ever so slightly, from what was until recently a negative base.
The turmoil surrounding trade and tariffs has been encouraging the BOJ to go slow, just like the Fed. Only one governor, the newly appointed Stephen Miran, dissented from the 25 basis point cut, with Miran insisting the Fed should trim by 50 basis points. U.S. rates now stand at a range of 4.0% to 4.25%.
Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), followed the Fed with a 25 basis point cut on Thursday, to 4.5%. That’s the first move since the HKMA trimmed rates 25 basis points last December. Most Hong Kong banks followed suit, including HSBC HSBC (HK:0005), Standard Chartered (HK:2888) and the local branch of Bank of China (HK:3988).
Now the focus for Asia-based investors will be on the intended call on Friday between U.S. President Donald Trump and Chinese President Xi Jinping. As I noted in my last story, TikTok and its future in U.S. app stores is dominating the headlines.
Trump to Talk With Xi in Key Call
As I predicted in that last story, Trump has now extended the deadline on a forced sale for TikTok by three months, to December 16. The terms of the deal are trickling out but not confirmed, with TikTok parent ByteDance likely to spin out the U.S. operations of TikTok, and bring in new investors to reduce Chinese ownership below 20%, as stipulated.
Oracle ORCL is reportedly among the new investors, as are Andreessen Horowitz and Silver Lake Technology Management. Existing private-equity investors into ByteDance such as Susquehanna International Group, General Atlantic and KKR KKR will also reportedly form part of the new ownership of the U.S. spinoff.
But there will surely be deeper implications for trade between the world’s top-two economies. Trump is keen to ink another trade deal with China to build on the “Phase One” agreement struck during his first term. But China has made “aggressive asks” that I’m sure extend to broader demands on tariff reductions and easier access to high-end semiconductors.
Beijing on Saturday opened an investigation into U.S. trade policy over chips. China’s Ministry of Commerce is looking at potential violations of China’s trade law stemming from U.S. measures to ensure only lower-grade semiconductors are sold into China. China maintains such policies are discriminatory.
China has ramped up the pressure by reportedly banning its largest tech companies from buying chips from Nvidia NVDA. That includes the RTX Pro 6000D chip rolled out in July by Nvidia, downgraded for sale in China.
But these are blows in an ongoing trade war, intended for maximum effect. The Financial Times reports Thursday that China has quietly dropped an antitrust investigation into Google GOOGL that it launched in February to much fanfare.
Asia-based investors will be keen to see what concessions are made on China trade coming out of Friday’s phone call. We can expect a reaction on Monday from stocks in Hong Kong and China, and perhaps a broader rally among export-heavy markets such as Taiwan and South Korea, too.
