Asian Stock Market Momentum in the Shadow of U.S. Equity Gains: Navigating Contagion and Regional Leadership in a Post-Pandemic Era

In Q3 2025, global equity markets have witnessed a stark divergence between U.S. and Asian equities, driven by cross-market contagion effects and shifting regional leadership. While U.S. equity funds faced a record $43.19 billion in outflows—the largest weekly net sales since mid-2024—Asian and European markets attracted combined inflows of $3.48 billionGlobal equity funds see a surge in weekly outflows^[1]. This reversal of fortune underscores a recalibration of investor sentiment, as trade uncertainties and U.S. policy risks prompt capital to seek refuge in Asia's resilient markets.

Cross-Market Contagion: U.S. Tariffs and Asian Resilience

The U.S. trade policy landscape, marked by elevated tariffs and geopolitical tensions, has amplified contagion effects across global markets. According to a report by Goldman Sachs Asset Management, Asian equity markets have absorbed shocks from U.S. tariffs through strategic rebalancing, including increased domestic consumption and regional trade agreements like the Regional Comprehensive Economic Partnership (RCEP)Market Know-How 3Q 2025 - Goldman Sachs Asset …^[2]. For instance, Vietnam and South Korea, heavily exposed to U.S. import tariffs, have mitigated losses by diversifying supply chains and leveraging Southeast Asia's manufacturing hubsGlobal Equity Views 3Q 2025 | J.P. Morgan Asset …^[3].

However, the contagion is uneven. Consumer discretionary sectors in Asia—particularly textiles and electronics—have underperformed by 5 percentage points relative to broader benchmarks, as U.S. tariffs on Chinese goods ripple through global supply chainsThe impact of US tariffs on Asian markets - The Business Times^[4]. In contrast, technology sectors, especially semiconductors and AI infrastructure, have remained largely insulated. TSMC, for example, reported a 38% year-over-year revenue surge in Q3 2025, driven by 60% of its revenue stemming from AI chip demandTSMC raises 2025 outlook in big boost for AI demand hopes^[5].

Central Bank Policy Divergence and Regional Easing Cycles

Monetary policy divergence between the U.S. and Asia has further fueled momentum shifts. While the Federal Reserve paused its rate-cutting cycle amid trade uncertainties, Asian central banks adopted a cautious easing approach. The Reserve Bank of India (RBI) cut rates by 50 basis points in early 2025, complementing fiscal stimulus to sustain 6.7% GDP growthAsia economic outlook 2025 – the easing cycle is set to continue^[6]. Similarly, the Reserve Bank of Australia (RBA) is projected to cut rates in May 2025 as inflation easesAsia to carefully navigate monetary policy as Fed slows easing, US tariffs loom^[7].

This divergence has created a favorable environment for Asian equities. J.P. Morgan Asset Management notes that Asia's equity valuations are 20% cheaper than U.S. counterparts, supported by accommodative monetary policies and robust corporate governance reformsEquity Market Outlook 3Q 2025 | Neuberger Berman^[8]. Japan and South Korea, in particular, have seen rising buybacks and dividends, attracting value-oriented investors seeking yieldGlobal Equity Views 3Q 2025 | J.P. Morgan Asset …^[3].

Sectoral Leadership: AI, Semiconductors, and the New Asian Growth Model

Asia's post-pandemic leadership is most evident in technology-driven sectors. The Asia-Pacific semiconductor market, valued at $432 billion in 2025, is projected to grow at 8.2% CAGR through 2030, fueled by AI demandAsia-Pacific Semiconductor Market Size & Share^[9]. TSMC's dominance in advanced-node manufacturing—accounting for 60-70% of sub-7nm foundry capacity—has solidified its role as a global AI semiconductor leaderTSMC AI Semiconductor Leadership and Financial Growth …^[10]. Meanwhile, Samsung and SK Hynix are investing heavily in HBM3E memory to meet surging demand for AI serversAPAC Q3 2025: 6 Technology Sectors Driving $100B+ Investment^[11].

The AI boom has also spurred innovation in digital services and fintech. According to McKinsey, 84% of Asian firms allocated $1–2 million to generative AI (GenAI) in 2025, with hybrid AI deployments and data security emerging as key growth areasThe rise of Asian global players | McKinsey^[12]. This technological leapfrogging positions Asia to capture 42% of global GDP by 2040, hosting 60% of Fortune Global 500 firmsRegional Economic Outlook for Asia and Pacific^[13].

Quantifying the Impact: Tariffs, Earnings, and Market Momentum

The U.S. tariff hikes on Chinese goods—escalating to 145%—have directly impacted Asian earnings. Vietnam's textile and electronics sectors face a potential 1.5–2.5% GDP contraction, while South Korea's auto industry could lose 0.5–0.7% of GDPTrump’s 2025 Tariffs Shake Asian Economies^[14]. However, Eastspring Investments' Q3 2025 outlook highlights a tactical shift in asset allocation, with reduced cash holdings and increased exposure to Asia's equities and credit marketsGlobal equity funds see a surge in weekly outflows^[1].

Despite these challenges, Asian markets have shown resilience. The IMF's Regional Economic Outlook notes that Asia's growth slowed to 3.9% in 2025 but remains supported by domestic demand and policy stimulusQ3 2025 Outlook: Tariffs, tensions, and a ticking clock^[15]. This contrasts with the U.S., where corporate earnings growth has plateaued amid elevated trade tensionsMarket Know-How 3Q 2025 - Goldman Sachs Asset …^[2].

Conclusion: A New Equilibrium in Global Markets

The Q3 2025 data underscores a pivotal shift in global market dynamics. While U.S. trade policies have triggered contagion effects, Asia's strategic policy responses, sectoral innovation, and favorable valuations have positioned it as a counterbalance. For investors, the interplay of cross-market contagion and regional leadership offers both risks and opportunities. Asian equities, particularly in AI and semiconductors, present compelling long-term prospects, even as short-term volatility persists.

As the Fed's policy trajectory remains uncertain, Asian central banks' measured easing and structural reforms will likely sustain momentum. The region's ability to adapt to U.S. tariffs—through supply chain diversification and technological leapfrogging—further reinforces its role as a post-pandemic growth engine.