Market Snapshot

Market Snapshot is a weekly view from our portfolio managers, offering sharp, thematic insights into the trends shaping markets right now.

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This week in numbers

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The proposed currency swap line offered to Argentina by the US Treasury.

The small-cap Russell 2000 Index hit an all-time high this week.

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The return on the MSCI Emerging Markets Index YTD.

Past performance is not an indicator of future performance.

Quote of the week

Valuations in Chinese equities remain very attractive and the rapid development of the country’s huge tech sector has generated a lot of interest.

Sandy Pei

Senior Portfolio Manager, China Equity at Federated Hermes

This week’s Market Snapshot

Chinese stocks soar on resurgent tech sector

Global investor sentiment towards China has shifted amid signs of further rapid developments in AI.

Chinese equities have rallied strongly in the second half of this year led by the soaraway performance of technology stocks and buoyed by a shift in global investor sentiment towards the world’s second-largest economy.

Investor excitement about China’s tech sector – which began with DeepSeek’s AI breakthrough at the start of the year – accelerated in September amid the development of further globally competitive artificial intelligence (AI) models, announcements of increased spending on AI infrastructure, and progress in Beijing’s push to achieve self-sufficiency in the manufacture of advanced microchips.

“Valuations in Chinese equities remain very attractive and the rapid development of the country’s huge tech sector has generated a lot of interest,” says Sandy Pei, Senior Portfolio Manager, China Equity at Federated Hermes.

The Hang Seng Tech index – of the 30 biggest Hong Kong-listed technology companies – has soared 50% YTD, compared to a 18% gain in the US tech-heavy Nasdaq Index over the same period¹.

Tech multinational Alibaba has risen 122% YTD – while fellow tech giants Tencent and Baidu are up more than 60% – and all three groups have invested heavily in AI. In September alone, Alibaba and Baidu saw their share prices rise 29% and 38.2%, respectively².

The tech rebound follows a torrid period that saw a crackdown on the technology sector, which led to a sharp fall in share prices and an exodus of foreign investors. However, a high-profile meeting between Chinese President Xi Jinping and leading tech groups earlier this year signalled a shift in government policy and has bolstered investor confidence in the sector.

Figure 1: Chinese AI stocks have rocketed YTD

Growth and deflation fears

Nonetheless, concerns remain about the health of China’s economy amid ongoing deflationary pressures and signs of slowing growth, despite the impact from trade tensions with the US being less severe than had been feared. China’s consumer price index contracted 0.4% year on year in August and export growth slowed³.

China’s GDP growth is forecast to slow to about 4% year on year in the second half of 2025, after expanding by 5.3% in the first half, according to S&P Global⁴.

The CSI AI Index – which tracks up to 50 A-share companies involved in AI – has returned 68.7% YTD, compared to 18% for the benchmark CSI 300 index⁵.

“There is evidence that some of the structural issues in the country – such as the problems in China’s property sector – are abating, while it is clear that many Chinese companies have continued to prosper despite the trade tensions with the US,” adds Pei.

Behind the red-hot rebound in emerging markets

Investing in a changing China

¹Bloomberg as at 2 October 2025.

²Ibid.

³ China slips back into deflation as economy shows signs of cooling

⁴ China rate cuts likely in fourth quarter amid growth concerns: Goldman Sachs | South China Morning Post

5 Bloomberg as at 2 October 2025.

Continue reading this month’s Market Snapshots

A dollar bazooka for Argentina

The US breaks out the big guns to help its LatAm ally.

For Argentina’s crisis-ridden economy, the cavalry arrived this week in the form of US Treasury Secretary Scott Bessent bearing promises of financial support. But will it be enough to convince investors to keep the faith?

A heavy local election defeat and a corruption scandal have called into question President Javier Milei’s ability to drive through much-vaunted free-market reforms.
Argentina’s benchmark Merval Index has fallen more than 30% this year and the value of the peso has hit a record low¹.
The US is looking at a US$20bn currency swap line with Argentina’s central bank and may buy Argentinian dollar-denominated bonds in the secondary market.

US Treasury Secretary Scott Bessent appeared to throw Argentina’s under-pressure President Javier Milei a lifeline this week with a commitment ‘to do what is needed’ to support Latin America’s third-largest economy.

Bessent’s comment came after weeks of turmoil following a heavy defeat for Milei’s coalition party, La Libertad Avanza, in local elections on 7 September, which, coupled with a corruption scandal involving a senior government advisor, have called into question the libertarian leader’s ability to drive through long-promised free-market reforms.

The local election defeat spooked investors and sparked a sell-off in Argentinian debt and equities. Prior to Bessant’s intervention, the country’s benchmark Merval Index extended losses to 25% for the year, while the value of the peso hit a record low. In response, the BCRA, the country’s central bank, spent more than US$1bn of its scarce foreign reserves propping up the country’s currency.

Figure 1

Figure 2

On Monday, following his message of support, Bessent announced negotiations over a US$20bn currency swap line with Argentina’s central bank, adding that the US government was prepared to buy Argentinian dollar-denominated bonds in the secondary market. The news calmed investors’ fears, with the peso rebounding 6% and yields on Argentinian dollar debt falling back to 3.7% on the day².

For Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes, the key question is how far US support will go and whether other institutions will join with the US to shore up Argentina’s economy.

“Further support, whether direct or via institutions like the IMF, could be pivotal,” he says. “It’s not just about liquidity. It’s about restoring confidence. Stabilising inflation, preserving reserves, and enabling legislative reforms are all critical to attracting foreign investment. Argentina’s economic fundamentals, especially in energy, tech, and agriculture remain strong. But October’s legislative elections are also a key inflection point. A poor outcome could complicate reform efforts, though broad public appetite for change may still carry momentum. With credible US backing, Argentina has a real chance to shift from fragility to resilience.”

De Vito highlights how the wording of Bessent’s message echoed that of then-ECB governor Mario Draghi during the eurozone crisis that the central bank would do “whatever it takes” to prevent the euro from failing. “This time, for Argentina, it seems to have helped calm fears of a full-blown FX crisis,” says De Vito. “The US appears to view Argentina as a strategic partner, an opportunity to champion democratic reform and market liberalisation in South America.”

¹Source: Bloomberg 26 September 2025

² Source: Bloomberg 25 September 2025

Rate cut marks Fed's policy direction shift

Fast reading

Fed cuts rates by 25bps, lowering target range to 4-4.25%.
Move comes amidst signs of a cooling US labour market and controlled inflation.
Updated economic projections see two more quarter-point cuts this year, and one apiece in 2026 and 27.

The Federal Reserve’s Federal Open Market Committee (FOMC) met this week against a backdrop of heightened economic uncertainty and mounting political pressure. In a long-awaited shift, policymakers on Wednesday announced a 25bps interest rate cut – the first since December 2024 – bringing an end to a pause in monetary policy moves¹. The decision takes the federal funds target range down to 4-4.25% – its lowest level since 2022.

The US Federal Reserve’s (the Fed) updated projections support a path of gradual cuts through year-end (as shown in Figure 1, below), with policymakers updating their economic projections for two additional decreases this year and one apiece in 2026 and 27. The cut in interest rates comes on the heels of new reports indicating a market slowdown in US hiring, while tariffs continue to exert only limited pressure on inflation.

Under pressure

This week’s meeting was notable not just for its policy move but also for the tense political environment surrounding the central bank in the lead up. US President Donald Trump’s attempt to remove Federal Reserve Governor Lisa Cook – a decision which was blocked by a court ruling this week – and his repeated demands for Fed Chair Jerome Powell to endorse a more aggressive rate-cutting regime have loomed large in recent weeks, exposing the Fed’s potential vulnerability to short-term political interests.

In a news conference following the announcement, Powell said the decision reflects a need to keep risks to the economy in line, describing it as a “risk management” cut.

Figure 1: Target rate probabilities

Stuck between the dots and a hard place

“The decision initially fuelled a rally in the US treasury market and a sell-off in the US dollar which briefly took the euro to a new four-year high. However, these moves were both short-lived following Powell’s cut description, which clashed with US treasury and dollar valuations as both had been pricing in a more aggressive Fed easing path” explains John Sidawi, Senior Portfolio Manager, International Fixed Income.

“The jury is still out on this tug of war between US growth and inflation. The impact of global tariffs has yet to be fully realised and the question of whether fiscal impulses will be sufficient to offset the drag of import taxes remains a large unknown. Much to the dismay of the FX and interest rate market the direction of US monetary policy remains very clear, but it was the journey that both markets mispriced yesterday,” Sidawi adds.

The jury is still out on this tug of war between US growth and inflation.

Sue Hill, Head of Government Liquidity Solutions, Federated Hermes notes that, while there was potential for drama, the FOMC meeting delivered few surprises: “As rate cuts go, this one was fairly painless.”

“The market didn’t quite know how to interpret everything – with initial swings in both the bond and equity markets before the day ended largely unchanged. I still expect two quarter-point cuts in October and December, targeting 3.50–3.75% by year-end and a terminal rate around 3%,” Hill adds.

Elsewhere…

The Bank of England (BoE) announced on Thursday it would hold interest rates steady at 4% – following August’s 25bps cut – as the central bank continues to tame above-target inflation. Figures released on Wednesday put UK inflation at 3.8% in the year to August.²

“There were no surprises from the Bank. Rate cuts need be „gradual and careful“, suggesting that the November cut is still 50/50. From here a tricky balance of monetary and fiscal policy is needed to revive the country from the current subdued growth,” explains Filippo Alloatti, Head of Financials, Federated Hermes.

The US SMID revival: Why this quiet rotation matters

How far does the Fed’s influence extend?

For more, read our H2 credit outlook.

¹ Federal Reserve Bank of New York, as at 17 September 2025.

² Office for National Statistics, as at 17 September 2025.

ECB holds rates as France struggles with debt crisis

Fast reading

French prime minister Francois Bayrou resigned this week after the National Assembly rejected his austerity budget in a no confidence vote
ECB president Christine Lagarde expressed confidence that policymakers in member states would want to reduce uncertainty, as the central bank elected to hold interest rates steady at 2%.
Elsewhere, Indonesia’s finance minister Siri Mulyani Indrawati was abruptly sacked on Monday in a move that will heighten uncertainty for investors.

The European Central Bank (ECB) held interest rates steady on Thursday, as the deepening crisis in the eurozone’s second-largest economy loomed large.

France’s government collapsed on Monday, leading to the loss of its third prime minister in just 12 months. Francois Bayrou resigned after the National Assembly rejected his austerity budget in a no confidence vote¹. President Emmanuel Macron appointed Sébastien Lecornu as the new prime minister on Wednesday².

Market reaction to the news was largely muted, and the benchmark CAC 40 index was up 1.3% over the course of the week³.

Amid widespread anti-government protests, Lecornu is faced with the same issue that brought down Bayrou after less than a year in the role – the poor state of France’s public finances.

France’s debt burden currently stands at around €3.3tn, representing 113.9% of GDP⁴. Debt is projected to rise to nearly 120% of GDP in 2026, according to the Organisation for Economic Co-operation and Development (OECD). The fiscal deficit was 5.8% of GDP in 2024, while the government is targeting a reduction to 5.4% in 2025⁵.

All of this means France is comfortably in breach of the European Commission’s agreed reference values of a 3% deficit ratio and a 60% debt ratio for member states⁶. The escalating crisis means that France may be on track to receive a downgrade to its credit rating, notes Mitch Reznick, Group Head of Fixed Income – London, Federated Hermes Limited.

“The French government has been squeezed by the left and the right. This remains a meaningful challenge and led to Bayrou being shown the door. On Friday 12 September, the country could very well see its credit rating downgraded by Fitch. The bond market is taking this all in with a bit of fraîcheur… for now. The difference between the French 10-year bond and the German equivalent has been cuffed around 80 basis points, close to the wides it hit when the confidence vote was originally announced, he says.”

“Meanwhile, as we have said before, we struggle to see how French risk can rally meaningfully in the near-term, which may up some investment opportunities,” he adds.

Figure 1: Yield spread – the difference between French-German 10-year yields

The governing council of the ECB elected to hold interest rates steady at 2% on Thursday. At a press conference, ECB president Christine Lagarde declined to comment on France specifically but expressed confidence that policy makers in member states would want to reduce uncertainty and operate within the ECB’s fiscal framework⁷.

The bond market is taking this all in with a bit of fraîcheur… for now.

Proposals fall as shareholders adjust to market sea-change

Accelerating action on AMR

Sustainable Global Equity, H1 2025

Indonesia changes course

Elsewhere, Indonesia is grappling with its own problems amid heightened economic uncertainty in Southeast Asia’s largest economy.

Finance minister Siri Mulyani Indrawati was abruptly sacked on Monday, following days of civic unrest, and was immediately replaced by economist Purbaya Yudhi Sadewa. The transition will likely heighten uncertainty for investors because of Indrawati’s longstanding role in shaping the country’s reputation for fiscal discipline.

“Indonesia’s strict fiscal posturing may have arguably limited its growth upside, and an increase in government spending may spur the creation of better paying middle class level jobs,” says Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes

“While we acknowledge the risks associated with staffing changes and a possible deviation from established proven policies, we also recognise the need for additional and more diverse economic growth. As such, we believe it’s too early to formalise a long- term view solely based on this week’s developments,” he adds.

For more information on EMD

¹ Vote de confiance : l’Assemblée nationale a désapprouvé la déclaration de politique générale du Gouvernement – Assemblée nationale

² The President of the Republic has appointed Sébastien Lecornu as Prime Minister. | Élysée

³ Source: Bloomberg.

⁴ At the end of Q1 2025, the Maastricht debt accounted for €3,345.4 billion – Informations rapides – 163 | Insee

⁵France: OECD Economic Outlook, Volume 2025 Issue 1 | OECD

⁶ Excessive deficit procedure – Consilium

⁷ PRESS CONFERENCE

BD016566

Ein fundamentaler Anlageansatz mit dem Ziel, in einem sich verändernden Marktumfeld eine finanzielle Outperformance zu erzielen.

EOS Stewardship

Chinese stocks soar on resurgent tech sector

This week in numbers

Chinese stocks soar on resurgent tech sector

Growth and deflation fears

Behind the red-hot rebound in emerging markets

Investing in a changing China

A dollar bazooka for Argentina

Fast reading

Under pressure

Figure 1: Target rate probabilities

Stuck between the dots and a hard place

The jury is still out on this tug of war between US growth and inflation.

Elsewhere…

The US SMID revival: Why this quiet rotation matters

How far does the Fed’s influence extend?

Fast reading

Figure 1: Yield spread – the difference between French-German 10-year yields

The bond market is taking this all in with a bit of fraîcheur… for now.

Proposals fall as shareholders adjust to market sea-change

Accelerating action on AMR

Sustainable Global Equity, H1 2025

Indonesia changes course

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Ein fundamentaler Anlageansatz mit dem Ziel, in einem sich verändernden Marktumfeld eine finanzielle Outperformance zu erzielen.

EOS Stewardship

Market Snapshot

Chinese stocks soar on resurgent tech sector

This week in numbers

Chinese stocks soar on resurgent tech sector

Growth and deflation fears

Behind the red-hot rebound in emerging markets

Investing in a changing China

Fast reading

Under pressure

Figure 1: Target rate probabilities

Stuck between the dots and a hard place

The jury is still out on this tug of war between US growth and inflation.

Elsewhere…

The US SMID revival: Why this quiet rotation matters

How far does the Fed’s influence extend?

The bond market is taking this all in with a bit of fraîcheur… for now.

Proposals fall as shareholders adjust to market sea-change

Accelerating action on AMR

Sustainable Global Equity, H1 2025

Related insights

Get the latest insights straight to your inbox

Related Insights

Der Wert von Anlagen und deren Erträge können sowohl steigen als auch fallen und Anleger erhalten das von ihnen investierte Kapital möglicherweise nicht zurück.

Sustainability. We mean it.

Ihre Präferenzen

Kontaktmöglichkeiten

Sustainability.
We mean it.