On July 14th local time, the U.S. Department of Labor released data showing that the U.S. July Producer Price Index (PPI) rose significantly, exceeding market expectations and cooling market hopes for a potential Federal Reserve rate cut in September. Consequently, Asia-Pacific markets showed weakness on Friday. However, for the entire week, Asia-Pacific markets remained predominantly positive.

Last week, most Southeast Asian markets posted gains. Thailand's SET Index edged up 0.03% to 1,259.42 points; Vietnam's Ho Chi Minh Index surged 3.08% or 48.86 points to 1,633.81 points; Indonesia's Jakarta Composite Index (JKSE) climbed 4.84% or 364.99 points to 7,898.38 points; Singapore's Straits Index fell 0.22% to 4,230.53 points; Malaysia's Kuala Lumpur Composite Index rose 1.24% to 1,576.34 points; and the Philippines' Manila Index declined 0.37% to 6,315.93 points.

Other major Asia-Pacific indices all advanced, with Japan's Nikkei 225 rising 3.37% or 1,557.83 points to 43,378.31 points; South Korea's KOSPI Index gaining 0.49% to 3,225.66 points; and Australia's S&P/ASX 200 Index climbing 1.49% to 8,938.6 points.

Research analysts suggest that the positive performance in Asia-Pacific markets stems from two factors: firstly, market uncertainty has eased somewhat after the U.S. government clarified its tariff policies toward many Asia-Pacific countries; secondly, with Fed rate cut expectations becoming increasingly clear and a loose dollar stance basically confirmed, capital is flowing toward Asia-Pacific markets, boosting emerging market performance.

Banking research institutions analyze that Asia-Pacific markets will likely exhibit overall upward volatility with increased differentiation in the future. "The Fed's rate-cutting cycle will reduce financing costs, benefiting technology stocks and high-growth sectors. A declining dollar and strengthening Asian currencies will also enhance emerging market asset returns, attracting more foreign investment to Asian markets. However, significant uncertainty remains regarding the Fed's pace, timing, and magnitude of rate cuts. If cuts fall short of expectations, market sentiment could experience sharp short-term volatility, with the dollar potentially rebounding and pressuring emerging market equities."

Analysts further note that uncertainty in U.S. tariff policies and global economic weakness could also impact export-oriented economies.

**Indonesian Market Continues Heating Up**

Southeast Asian markets have surged over the past month. "The gains in Vietnamese, Indonesian, and Malaysian markets reflect heightened expectations of Fed policy shifts and accelerated global asset reallocation. Due to cooling job markets and continued pressure from Trump on the Fed, market expectations for a 25 basis point Fed rate cut in September have intensified, with discussions beginning about the possibility of a 50 basis point cut. Expectations of loose liquidity are driving global capital toward emerging markets."

Market analysts explain that Vietnam's rapid economic growth makes it a key beneficiary of global supply chain restructuring, attracting substantial cross-border capital inflows.

In terms of gains, Indonesia's Jakarta Composite Index (JKSE) showed the most outstanding performance, rising 5.53% for the month and briefly hitting historical highs last week. As Indonesian markets continue heating up, the Jakarta Composite Index's total market capitalization has also surged, once breaking through $860 billion.

The President of the Indonesia Stock Exchange stated that when the composite index market value surpassed 13,701 trillion rupiah on July 29th, Indonesia's stock market had already jumped to 17th place globally.

Financial platform co-founders note that the current Indonesian composite stock price index trend is mainly driven by strengthening stocks from two major conglomerates, such as the Prajogo Pangestu Group and the Salim Group.

To date, Indonesia's Jakarta Composite Index has rebounded over 30% from its April lows. This has attracted global capital inflows, with data showing net purchases of $283 million in Indonesian stocks in August, reversing two consecutive months of capital outflows.

Beyond reduced uncertainty in U.S. tariff policies, analysts believe Indonesia's economic growth exceeded expectations, with second-quarter economic growth returning above 5%, boosting market confidence. Additionally, Indonesia's continued restrictions on resource exports, promotion of manufacturing "localization," attraction of manufacturing investment, and enhancement of its position in international supply chain systems continue driving Indonesian economic improvement. Meanwhile, consecutive rate cuts by Indonesia's central bank have also boosted investor confidence in Indonesian markets.

"As Southeast Asia's largest economy, Indonesia's stock market attracts foreign capital return due to its valuation discount characteristics." Market experts note that Indonesia's foreign exchange earnings mandatory retention policy implemented since March, requiring exporters to keep foreign exchange earnings in domestic banks for at least one year, has significantly increased foreign exchange reserves, enhancing market confidence in the Indonesian rupiah exchange rate and indirectly supporting the stock market.

The strengthening of related markets has gradually formed regional market linkage effects, enhancing attractiveness to international capital.

**Non-USD Currencies Strengthen**

Last week, as markets briefly expected Fed rate cuts next month, the dollar once fell near multi-week lows, with non-USD currencies collectively strengthening.

On Thursday, the Indonesian rupiah once rose 0.62% against the dollar to a seven-month high of 16,090, continuing its rebound momentum since touching its lowest level since June 1998 in March. Currently, the rupiah trades approximately 1% below 2024 year-end levels. For the entire week, the rupiah gained 0.33% against the dollar.

Some non-USD currencies also showed gains against the dollar. Last week, the Singapore dollar rose 0.21% against the dollar, and the yen gained 0.39% against the dollar.

"Asian currency strength benefits from factors including heightened Fed rate cut expectations and declining dollar index. The U.S. federal government's debt scale exceeding $37 trillion has sparked continued questioning of the dollar credit system, with global central banks and sovereign monetary institutions gradually increasing holdings of Asian currencies like the yen and yuan." Analysts also point out that as trade policy uncertainty eases and Asian economic fundamentals improve, more cross-border capital is beginning to return to the Asian region.

**Thailand Central Bank Cuts Rates to Promote Economy**

Last Wednesday, Thailand's central bank cut the benchmark interest rate by 25 basis points, marking the fourth rate cut in 10 months and bringing the key rate to its lowest level in over two years. The Thai central bank stated it hopes this move will support the weak economy to address negative inflation and U.S. tariff impacts.

Thailand's central bank expects economic growth to slow in the second half of this year. Analysts note that Thailand's second-quarter economic growth was only 2.5%, down from 3.1% in the first quarter, reflecting economic weakness. Additionally, U.S. tariff policies have significantly impacted Thai export trade, prompting Thailand to support economic recovery through rate cuts. "Considering Thailand's low inflation levels, further rate cuts are very likely in the future. Other Southeast Asian countries will also probably begin rate-cutting processes."

Data shows that in July, Thailand's inflation recorded negative year-over-year growth of -0.70%. Thailand's Ministry of Commerce expects August inflation to also be negative but does not anticipate deflation.

Academic experts suggest that Thailand's CPI has declined for four consecutive months mainly due to falling energy or utility prices, not demand contraction. Currently, Thailand's employment, tourism consumption, and export performance have not formed a negative cycle, with fiscal and monetary policies having adjustment space, making it likely Thailand will maintain "low-level moderate inflation."

**Market Optimistic on Japanese Equities**

Last week, Japan's stock market was the standout performer among Asia-Pacific markets. On August 15th, the Nikkei 225 index closed Friday up 729.05 points, gaining 1.71% to 43,378.31 points, setting a closing record high. The same day, Japan's TOPIX index also hit new highs, closing Friday up 1.63% at 3,107.68 points.

UBS raised its end-2026 TOPIX target from 2,900 to 3,100 points and Nikkei target from 40,000 to 44,000 points. Based on favorable Japanese macroeconomic performance for the Nikkei index and positive U.S.-Japan trade dynamics, investment bank reports also show global hedge funds have doubled their Japanese equity investments.

"Japanese stock market appeal includes accelerating corporate governance reforms and faster profit-driven growth. Japanese companies are enhancing shareholder returns through higher dividend yields, share buybacks, and accelerated AI investments, driving the Nikkei 225 to historical highs." Analysts point out that simultaneously, with recent yen pullbacks, yen carry trades have restarted. International hedge funds profit through "borrow yen, buy Japanese stocks" strategies, with long positions reaching near one-year highs.

Although South Korea's stock market posted modest gains last week, investment reports indicate that early August hedge fund net allocation to South Korea was slightly below peak levels of the past decade.

In early August, South Korea's government announced a comprehensive tax reform plan, including raising securities transaction tax from 0.15% to 0.2% and lowering the capital gains tax threshold from 5 billion won to 1 billion won. This triggered domestic market opposition, with concerns it would suppress investor sentiment.

Market analysts note that South Korea's stock market has already risen substantially this year and needs correction. "Global chip demand decline, combined with U.S. announcements of high tariffs on imported semiconductors, will pressure Korean semiconductor company profits, suppressing market sentiment and stock markets, with foreign capital gradually flowing out of Korean markets."