Asian Equities Rebound as December Fed Rate-Cut Bets Strengthen

Asian stock markets moved higher on Monday, partially recovering recent losses as traders grew more confident that the U.S. Federal Reserve could deliver an interest rate cut in December.

Buying interest returned to beaten-down technology names across the region, with investors selectively re-entering the sector after weeks of heavy selling. Overall activity was somewhat subdued, however, as a holiday in Japan dampened regional trading volumes.

Chinese equities underperformed their regional peers, dragged lower by semiconductor names following reports that the U.S. may allow NVIDIA Corporation (NASDAQ: NVDA) to resume sales of a key AI chip in the country. Airline stocks also came under pressure amid signs of sharply reduced Chinese travel demand to Japan against a backdrop of rising diplomatic tensions between Beijing and Tokyo.

The positive tone in Asia followed a constructive close on Wall Street on Friday, where dovish-leaning comments from several Fed officials helped improve risk sentiment. U.S. equity futures extended those gains, with S&P 500 futures up around 0.4% as investors looked for further recovery after the recent pullback.

Regional Markets Advance on Policy Hopes

Across the region, equity benchmarks posted broad-based gains. Australia’s ASX 200 climbed around 1%, supported by financials and resource-linked names, while Singapore’s Straits Times Index added approximately 0.4%.

India’s Nifty 50 inched 0.3% higher, extending its upward trend, and Hong Kong’s Hang Seng Index outperformed with a rise of about 1.6%, led by a rebound in large-cap technology shares.

South Korea’s KOSPI at one point advanced as much as 1.5% before paring gains to trade about 0.2% higher, reflecting some lingering caution after the recent volatility in global tech stocks.

The move higher across Asian markets was underpinned by a sharp repricing of expectations for U.S. monetary policy. Following recent comments from New York Fed President John Williams, who signaled support for a rate cut in December, traders ramped up their bets on near-term easing. According to CME’s FedWatch tool, markets were assigning roughly a 67.3% probability to a 25-basis-point cut in December, up from just 39.8% a week earlier.

Investors are now focused on a series of key U.S. macro releases for September, including inflation and labor market data, which are expected to offer further clues on the trajectory of the world’s largest economy. However, the absence of October readings leaves the Fed with incomplete visibility heading into its early-December policy meeting.

Even so, the prospect of lower borrowing costs is broadly supportive for risk assets, as easier policy typically improves liquidity conditions and supports appetite for equities, particularly in growth and tech segments.

Chinese Markets Lag on Chip and Travel Weakness

In contrast to the broader regional upswing, mainland Chinese indices lagged. The Shanghai Shenzhen CSI 300 and the Shanghai Composite both edged lower by about 0.3%, reflecting weakness in the country’s semiconductor sector and persistent uncertainty over the scale and timing of additional stimulus measures from Beijing.

Semiconductor Manufacturing International Corp. (SMIC) (HK: 0981), China’s leading chip foundry, tumbled around 7.2%, while AI chipmaker Cambricon Technologies Corp Ltd (SS: 688256) slipped roughly 2%. The sell-off followed reports that the U.S. administration was considering allowing Nvidia to sell its H200 AI chip into China.

Such a move could soften demand for domestically produced chips and complicate Beijing’s broader ambition to achieve self-sufficiency in advanced semiconductor and AI technology. The H200 is estimated to be roughly twice as powerful as Nvidia’s H20 chip, which is currently the most advanced processor that the firm is allowed to offer in the Chinese market under existing U.S. export controls.

At the same time, the potential loosening of restrictions would be a boon for China’s major internet and platform companies, which rely heavily on high-performance AI hardware to advance their own AI strategies. This dynamic helped limit some of the downside in Chinese tech broadly.

Selective Strength in Chinese Tech Names

Despite the pressure on chipmakers, several heavyweight Chinese technology stocks posted gains in Hong Kong trading.

Tencent Holdings (HK: 0700) rose about 0.7%, while Alibaba Group (HK: 9988) jumped roughly 4% ahead of its quarterly earnings release scheduled for Tuesday. Sentiment around Alibaba was supported by news that a newly launched AI application by the company had achieved 10 million downloads within its first week, reinforcing investor confidence in its AI and cloud ecosystem.

Baidu Inc. (HK: 9888) advanced nearly 2% after JPMorgan upgraded the stock to “Overweight” from “Neutral” and raised its price target, citing growing upside from the company’s AI initiatives and cloud services.

Nevertheless, these gains came against the backdrop of heavy losses in Asian technology shares over recent weeks, as investors reassessed stretched valuations in AI-related names. Japanese and South Korean markets had been among the hardest hit during the correction, given their high exposure to the sector.

Airline Stocks Weighed Down by China–Japan Tensions

Chinese airline shares retreated, reflecting concerns over travel demand following reports of large-scale cancellations of flights to Japan by Chinese tourists. The cancellations come amid escalating diplomatic tensions between Beijing and Tokyo, raising the risk of a broader impact on tourism flows and related sectors.

While Monday’s session highlighted renewed optimism around global monetary policy and AI-led growth stories, the divergence between Chinese markets and the rest of Asia underscored ongoing geopolitical and regulatory risks that investors must continue to factor into their regional positioning.