Global Equity Market Interconnectivity and the FTSE 100's Strategic Response to Asian Momentum

The global equity landscape in 2025 is defined by divergent regional dynamics, with the FTSE 100 and Asian markets exhibiting a complex interplay of momentum, policy-driven volatility, and cross-regional spillovers. As investors navigate this environment, understanding the timing and magnitude of these interconnections becomes critical for momentum strategies.

Macroeconomic Divergence and Trade Policy Winds

The FTSE 100's Q3 2025 outperformance-its best quarter since late 2022-was fueled by a weaker British pound and robust performance in communication services and technology sectorsQuarterly markets review Overview of markets in Q3 2025, [https://www.schroders.com/en-us/us/institutional/insights/quarterly-markets-review---q3-2025/]^[3]. This aligns with broader global trends where AI-driven growth has become a dominant narrative. Meanwhile, Asian markets displayed mixed signals. South Korea and Taiwan capitalized on tech-sector gains, while India and ASEAN economies faced headwinds from lingering tariff pressuresQuarterly markets review Overview of markets in Q3 2025, [https://www.schroders.com/en-us/us/institutional/insights/quarterly-markets-review---q3-2025/]^[3].

Trade policy shifts have been a double-edged sword. The U.S.-China trade détente, including a 90-day pause on reciprocal tariffs, created a window for Asian economies to secure favorable termsAsia Equity Market Outlook: Q3 2025, [https://www.morningstar.com/en-hk/business/insights/research/asia-equity-market-outlook]^[2]. However, smaller economies like Vietnam and Cambodia struggled with reduced U.S. exports due to new tariffsAsia-Pacific Must Let Trade Turbulence Distract from Long ..., [https://www.undp.org/asia-pacific/press-releases/asia-pacific-must-not-let-trade-turbulence-distract-long-term-development-goals]^[5]. These divergences highlight the importance of sector-specific positioning in cross-regional momentum strategies.

Lagged Responses and Momentum Cycles

Lagged market responses to trade policy changes have amplified volatility. For instance, the Eurostoxx 600 historically experienced a 6-month delay in reacting to trade policy uncertainty (TPU), peaking at -7.6% declinesDisentangling trade policy uncertainty and equity market performance, [https://cepr.org/voxeu/columns/disentangling-trade-policy-uncertainty-and-equity-market-performance]^[4]. While explicit data for Q3 2025 is scarce, Asian markets showed similar patterns, with volatility subsiding as trade negotiations progressedAsia Equity Market Outlook: Q3 2025, [https://www.morningstar.com/en-hk/business/insights/research/asia-equity-market-outlook]^[2]. This suggests that momentum investors must account for delayed reactions, particularly in sectors like aerospace and materials, where lagged volatility spillovers are pronouncedQuarterly markets review Overview of markets in Q3 2025, [https://www.schroders.com/en-us/us/institutional/insights/quarterly-markets-review---q3-2025/]^[3].

The FTSE 100's performance in Q3 2025 also reflects its sensitivity to global macroeconomic conditions. J.P. Morgan Research notes that European interest rates are expected to decline, contrasting with U.S. rates remaining "higher for longer," creating divergent market behaviorsDisentangling trade policy uncertainty and equity market performance, [https://cepr.org/voxeu/columns/disentangling-trade-policy-uncertainty-and-equity-market-performance]^[4]. This divergence underscores the need for dynamic asset allocation, balancing exposure to European equities (benefiting from rate cuts) and Asian tech-driven growth.

Strategic Timing and Cross-Regional Synergies

Momentum investing in 2025 requires a nuanced approach. The FTSE 100's resilience in Q3 2025 was partly due to its exposure to global trade flows and currency tailwindsQuarterly markets review Overview of markets in Q3 2025, [https://www.schroders.com/en-us/us/institutional/insights/quarterly-markets-review---q3-2025/]^[3]. A weaker pound boosted earnings for UK firms with international operations, mirroring the benefits Asian markets derived from U.S. dollar weaknessAsia Equity Market Outlook: Q3 2025, [https://www.morningstar.com/en-hk/business/insights/research/asia-equity-market-outlook]^[2]. Investors could leverage these dynamics by pairing long positions in UK tech and communication services with short-term hedges in Asian sectors vulnerable to tariff pressures.

Asian markets, meanwhile, offer opportunities in AI and regional trade partnerships. The Regional Comprehensive Economic Partnership (RCEP) is projected to boost intra-Asian trade by $400 billion annually by 2030How Asian markets will respond to changes in demand & trade, [https://www.weforum.org/stories/2025/01/how-asian-markets-respond-changes-demand-and-trade/]^[1], reducing reliance on non-Asian markets. This regionalization trend suggests that momentum strategies should prioritize economies with strong domestic demand and policy frameworks to absorb external shocksAsia Equity Market Outlook: Q3 2025, [https://www.morningstar.com/en-hk/business/insights/research/asia-equity-market-outlook]^[2].

Risks and Mitigation

Persistent trade fragmentation and protectionist policies remain risks. The UNDP warns that smaller Asian economies face disproportionate export declines due to rising tariffsAsia-Pacific Must Let Trade Turbulence Distract from Long ..., [https://www.undp.org/asia-pacific/press-releases/asia-pacific-must-not-let-trade-turbulence-distract-long-term-development-goals]^[5]. For the FTSE 100, exposure to European fiscal adjustments and geopolitical uncertainties (e.g., energy prices) could introduce volatility. Diversification across sectors and geographies-leveraging the low correlation between the Hang Seng Index and global benchmarks (historical correlation of 0.437 with the S&P 500Disentangling trade policy uncertainty and equity market performance, [https://cepr.org/voxeu/columns/disentangling-trade-policy-uncertainty-and-equity-market-performance]^[4])-can mitigate these risks.

Conclusion

The FTSE 100's Q3 2025 performance and Asian market dynamics illustrate the power of strategic timing in cross-regional momentum investing. By aligning with AI-driven sectors, capitalizing on currency tailwinds, and hedging against trade policy risks, investors can navigate divergent macroeconomic cycles. As global trade continues to regionalize and AI reshapes industries, the ability to anticipate lagged responses and sector-specific momentum will define successful strategies in 2025 and beyond.