Fed Expectations Fuel Asian Gains Amid China’s Market Struggles

Most Asian equities edged higher on Monday, recovering part of their recent declines as renewed confidence grew that the U.S. Federal Reserve will move ahead with an interest-rate cut in December. A wave of bargain hunting in heavily sold technology counters supported the rebound, although overall activity in the region was muted due to a market holiday in Japan.

Chinese markets underperformed, weighed down by a sharp drop in domestic semiconductor shares following reports that the United States may permit NVIDIA Corporation (NASDAQ: NVDA) to resume selling a key chip in China. Airline stocks were also under pressure amid reports that Chinese travelers had canceled thousands of flights to Japan as political tensions between the two countries intensified.

The upbeat tone across Asia tracked Wall Street’s gains on Friday, when dovish comments from Fed officials boosted risk sentiment. U.S. equity futures continued to firm, with S&P 500 futures rising 0.4% as the market attempted to claw back recent losses.

Regional benchmarks mostly advanced: Australia’s ASX 200 climbed 1%, Singapore’s Straits Times Index added 0.4%, India’s Nifty 50 rose 0.3%, and Hong Kong’s Hang Seng jumped 1.6% on broad strength in technology names. South Korea’s KOSPI initially rose as much as 1.5% before trimming gains to trade 0.2% higher.

Market momentum was largely driven by a renewed shift toward expectations of a December rate cut, particularly after New York Fed President John Williams signaled support for such a move. CME FedWatch data indicated traders were pricing in a 67.3% probability of a 25-basis-point cut, up from 39.8% the previous week.

Investors are now awaiting a series of U.S. economic indicators for September—including inflation and labor data—which may offer additional insight into the economic outlook. However, the absence of October figures leaves policymakers with limited visibility heading into the early-December meeting. Even so, the prospect of lower borrowing costs remains supportive for risk-oriented equity markets.

Mainland Chinese indices lagged as chipmakers led declines. The Shanghai Shenzhen CSI 300 and the Shanghai Composite both slipped roughly 0.3%, while gains in Hong Kong were tempered by similar sector pressures. Semiconductor Manufacturing International Corp. (HK:0981) fell 7.2%, and AI chipmaker Cambricon Technologies Corp. Ltd. (SS:688256) dipped around 2%.

The sector reacted negatively to reports that the Trump administration was considering allowing NVIDIA to sell its H200 AI chips in China. Such a decision could erode demand for domestic alternatives and complicate Beijing’s efforts to achieve self-sufficiency in advanced semiconductor technology. The H200 is believed to offer double the performance of the H20, currently the most sophisticated chip NVIDIA can export to China under existing restrictions. However, access to more advanced chips could help Chinese tech giants sustain their AI development. Tencent (HK:0700) edged up 0.7%.

Alibaba Group (HK:9988) jumped 4% ahead of its earnings release on Tuesday, buoyed by news that a newly launched AI application had reached 10 million downloads within a week. Baidu Inc. (HK:9888) gained nearly 2% after JPMorgan upgraded the stock to Overweight, citing expanding opportunities in AI and cloud services.

Nevertheless, technology shares across Asia remain under pressure after weeks of heavy selling, driven by doubts over whether AI-related enthusiasm can justify elevated valuations. Markets in Japan and South Korea have been among the hardest hit.

Chinese airline shares also weakened following reports of large-scale cancellations of flights to Japan, underscoring the impact of deteriorating diplomatic relations between Beijing and Tokyo.