For Institutional, Professional, Qualified and/or Wholesale Investor Use Only in Permitted Jurisdictions as defined by local laws and regulations.
This content was published in the Hong Kong Economic Journal on December 2, 2025
Markets remain unsettled as long-delayed economic data trickles in after the U.S. government shutdown, leaving investors navigating a persistent “data fog.” Backward-looking indicators dominate, but the real question is forward GDP momentum. Recent volatility reflects uncertainty: the economy shows resilience, yet cracks are emerging as lower- and middle-income households face tighter credit and rising costs, even as wealthier consumers stay buoyant. This divergence matters—consumer spending drives growth.
The Fed is effectively “driving in the fog.” While soft labor conditions and subdued sentiment raise concerns, they are not recessionary, giving policymakers room to wait for clearer signals. If the labor market weakens sharply, rate cuts could come sooner to sustain expansion. Looking ahead, we expect expansive fiscal policy and gradual monetary easing to create a supportive backdrop for risk assets. Despite political noise around tariffs, fundamentals point to a pro-growth environment favoring equities and credit.
Equity markets reflect tension. Tech giants’ success is fueling speculation about an AI bubble. Valuations remain below dot-com extremes, supported by solid earnings, strong revenue prospects, and healthy balance sheets. Still, with AI-related capital expenditure at eye-popping levels, skepticism about returns is healthy—especially given the difficulty of quantifying productivity gains. One warning sign to watch: rising debt-funded AI capex. If this accelerates relative to market cap, it could signal bubble territory. A sharp correction in AI-linked assets could spill over into consumer spending and broader growth.
We continue to see compelling opportunities in U.S. equities—especially in Large Cap Tech which will continue to benefit from the combination of solid fundamentals and structural AI theme, and US Healthcare on historically cheap relative valuations and defensive characteristics providing safety to navigate any pickup in volatility.
In Asia, Taiwan equities stand out as major beneficiaries of the surge in AI-related capital expenditure, while China is making significant strides in AI development and remains a potential co-leader with US in AI. In China, policy support aimed at pivoting the economy away from deflation and toward consumption should continue, and we prefer a barbell approach combining China Tech with high-dividend strategies. The Chinese market also looks set to benefit from the potential migration of more than US$20 trillion in household deposits toward capital markets. India, despite headwinds from U.S. immigration and trade policies that led to underperformance in 2025, retains a strong domestic growth story. Structural reforms and constructive signals on trade talks between the US and India reinforce its long-term appeal, while its low correlation with other markets provides valuable diversification for global portfolios.
We remain constructive on credit supported by solid growth and accommodative policy. However, we prefer credit at shorter maturities while active issuer selection and disciplined risk management are increasingly critical in navigating today’s complexities.
For downside protection, we favor long-dated U.S. Treasuries, which historically perform well during volatility. Despite concerns that past policies dented confidence in the dollar, foreign demand for Treasuries remains strong, and recent dollar weakness appears to be an orderly repricing rather than a crisis. Gold returns may moderate as central bank buying stabilizes.
Overall, investors should stay nimble. In an environment where information is scarce and crosscurrents risk turning into rip tides, flexibility matters more than bold conviction. Position for long term tech innovation, diversify growth risks, and keep an eye on liquidity. The winners will be those who adapt quickly without overreacting to noise.
Important information
Investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice. The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account. Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided.
This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
This material is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This document is issued in:
- Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS License No. 225385), which is regulated by the Australian Securities and Investments Commission and is only directed at wholesale clients as defined under Corporations Act 2001.
- China by Principal Asset Management Company (Asia) Limited (“PAMHK”) and are intended for the exclusive use by the intended recipient in the People’s Republic of China (for the purpose of this disclaimer excluding Taiwan, Hong Kong SAR and Macau SAR) (“PRC”) to whom PAMHK has directly distributed these documents. These documents are for information purposes only and do not constitute a recommendation, professional advice, solicitation for offer or offer by PAMHK to subscribe, purchase or sell any security or interest of the fund in the PRC, nor shall it be construed as any undertaking of PAMHK to complete any transaction in relation to the fund and other related services. These documents have not been and will not be approved by any PRC governmental or regulatory authority. Generally, these documents must be distributed to specific entities on a private basis and is solely for use by such specific entities who satisfy themselves that all applicable PRC laws and regulations have been complied with, and all necessary government approvals and licenses (including any investor qualification requirements) have been obtained in connection with their investments outside PRC.
- Hong Kong SAR by Principal Asset Management Company (Asia) Limited, which is regulated by the Securities and Futures Commission. This document has not been reviewed by the Securities and Futures Commission. This document may only be distributed, circulated or issued to persons who are Professional Investors under the Securities and Futures Ordinance and any rules made under that Ordinance or as otherwise permitted by that Ordinance.
- Taiwan, the limited partnership interests/fund are not registered in Taiwan and may not be sold, issued or offered in Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate the offering and sale of the interests/fund in Taiwan.
- Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No. 199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at institutional investors as defined by the Securities and Futures Act 2001. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
- Other APAC Countries/Jurisdictions, this material is issued for institutional investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and is delivered on an individual basis to the recipient and should not be passed on, used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Principal Asset ManagementSM is a trade name of Principal Global Investors LLC.
© 2025 Principal Financial Services, Inc., Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc.
5030474