After a week in which markets repeatedly shifted between optimism and caution, the message is clear: the Asia-Pacific bull market remains intact, but the cost of money is becoming an increasingly important test of its durability.
Asian and Australian financial markets ended the week to August 28 on a mixed footing, as investors balanced renewed optimism over artificial intelligence and technology earnings against growing concerns about interest rates, inflation and the direction of global monetary policy.
The week was marked by sharp daily swings across the region, with markets initially retreating before recovering as strong results and guidance from Nvidia revived enthusiasm for the technology sector. By Friday, however, renewed concerns over US interest rates and semiconductor trade restrictions had again unsettled investors.
Australia’s benchmark S&P/ASX 200 was among the steadier performers, finishing Friday at 9,092.3 points after rising 0.60 per cent on the day. The index gained 0.37 per cent over the five trading sessions.
The modest weekly gain disguised a volatile period for Australian equities. Shares came under heavy pressure on Thursday after inflation data strengthened expectations that the Reserve Bank of Australia could raise interest rates again.
Australian market caught between earnings and inflation
The ASX 200 fell almost 1 per cent on Thursday following data showing that underlying inflation remained stubbornly high. The trimmed-mean measure of inflation remained at 3.6 per cent in July, above the Reserve Bank’s target range, prompting several major banks to increase their expectations for another rate increase.
The prospect of higher interest rates created particular pressure on consumer discretionary, technology and other interest-rate-sensitive stocks.
Yet the market rebounded strongly on Friday, helped by technology shares and gains across mining and banking stocks. Dicker Data was one of the week’s standout performers, rising more than 20 per cent after reporting stronger earnings, while Xero gained 4.8 per cent.
The Australian dollar also strengthened during the week, reaching around US72 cents and touching a three-and-a-half-month high of US72.05 cents. Investors increasingly expect Australian interest rates to remain higher for longer, providing support for the currency.
Bond markets reflected the same concerns. Australia’s 10-year government bond yield ended Friday around 5.09 per cent, highlighting the substantial repricing of interest-rate expectations.
Japan maintains its strength
Japan’s Nikkei 225 was one of the region’s stronger major markets over the week, despite considerable volatility.
The index finished Friday at 66,405.56, gaining 0.41 per cent on the day. It began the week at 65,528.09, meaning it gained roughly 1.3 per cent over the five sessions.
Japanese equities continued to benefit from strong corporate earnings, technology demand and a favourable environment for exporters. However, currency movements remain a major consideration for investors.
Japanese authorities disclosed on Friday that they had spent a record US$96.5 billion supporting the yen over the previous month, demonstrating the pressure facing policymakers as the currency remains vulnerable to interest-rate differentials.
China struggles to establish momentum
Chinese mainland markets were considerably less decisive.
The Shanghai Composite finished Friday at 3,952.18, compared with 3,882.01 at the beginning of the week. That represented a gain of roughly 1.8 per cent across the five sessions despite a 0.11 per cent decline on Friday.
The performance reflected a relatively strong recovery from Monday’s weakness, although concerns over China’s property sector and uneven economic growth continued to weigh on sentiment.
Hong Kong’s Hang Seng Index, meanwhile, finished at 25,584.79. It suffered a sharp 1.89 per cent decline on Monday before recovering during the remainder of the week, ultimately ending broadly unchanged compared with the previous Friday.
Technology remained an important source of volatility in Greater China, with investors continuing to assess the outlook for artificial intelligence, semiconductors and China’s ability to compete with US technology companies.
South Korea hit by semiconductor volatility
South Korea provided one of the clearest examples of the week’s volatility.
The KOSPI plunged 3.12 per cent on Monday before recovering for three consecutive sessions. It gained 1.53 per cent on Thursday following the Bank of Korea’s decision to raise its policy rate to 3 per cent. The index then fell 1.79 per cent on Friday to close at 6,788.88.
Despite the sharp rebound during the middle of the week, the KOSPI finished lower overall.
The semiconductor sector remained at the centre of investor attention. Nvidia’s strong results provided a boost to technology shares, but concerns over possible US semiconductor tariffs and intensifying competition created renewed selling pressure.
Rate expectations become the dominant theme
The common thread running through markets this week was the growing importance of interest rates.
Investors entered the week focused on Nvidia and the continuing strength of the AI investment cycle. By the end of the week, however, attention had shifted towards inflation and central banks.
In the United States, Federal Reserve Chair Kevin Warsh’s comments at Jackson Hole increased expectations of a possible September rate increase, while rising Treasury yields placed additional pressure on global equities.
The shift in US monetary-policy expectations was particularly important for Asian markets because higher US yields can attract capital towards US assets and increase financing costs throughout emerging markets.
Global investors also became more cautious. Reuters reported that global equity funds recorded their first weekly outflow since May, ending a 13-week run of inflows. At the same time, Asian equity funds still attracted about US$4.8 billion, demonstrating that investor appetite for the region has not disappeared.
The week therefore ended with a complicated message for investors.
The technology and AI investment story remains powerful, Japan continues to perform strongly and Australian equities remain near record territory. Yet elevated inflation, higher bond yields and uncertainty over central-bank policy are increasingly challenging the valuations that have driven markets higher.
For the coming weeks, investors across Asia-Pacific are likely to focus increasingly on economic data rather than corporate earnings alone.
Australia’s inflation and interest-rate outlook, China’s economic recovery, Japanese currency intervention and the global semiconductor cycle will all remain critical.
