Q4 Outlook | Market Strategy at All-Time Highs: The Three Great Battles

In our latest quarterly Macro Economic Outlook (MEO), Vice Director of Research Vivianna provides crucial insights into elevated stock market valuations and the evolving global economic landscape beyond tariffs. Drawing on the evolving US-China rivalry, dissected are how tariffs—now largely priced in—give way to deeper geopolitical and economic shifts. With global assets showing divergent performance (e.g., strong gains in US tech and Chinese new-economy stocks, weakness in oil and the dollar), three interlocking “battles” are outlined: hegemony (who sets the rules), productivity (who creates value), and currency (who controls money). These frameworks not only explain current market resilience but also highlight structural opportunities through 2026 and beyond.

I. The US-China Hegemonic Contest Centers on India & Fed Independence, Not Just Tariffs

The hegemonic struggle has evolved beyond trade deficits into a comprehensive battle for global economic order. China has proven surprisingly resilient in Trade War 2.0, with mainland and Hong Kong equities rallying 19-32% year-to-date despite tariff pressures—a stark contrast to the sharp declines during 2018-2019. This resilience stems from China’s strategic “de-Americanization,” reducing US export exposure from 20% to roughly 10% of total exports, alongside critical policy pivots toward “new quality productive forces” and anti-involution measures that address chronic overcapacity.

For the United States, maintaining hegemonic advantage requires mastering two key variables: internally, preserving Federal Reserve independence while achieving orderly rate cuts, and externally, securing India as a strategic counterweight. The September 2025 rate cut represents a crucial victory—the FOMC justified the move with deteriorating employment data and controlled inflation, establishing a “preventive easing” narrative rather than crisis-driven or politically compromised cuts. Looking ahead to 2026, the voting committee composition naturally shifts dovish even without excessive White House interference, with multiple centrist-to-dove members rotating in.

India emerges as the true fulcrum. Possessing both a massive consumer market (projected to grow from 150 million to 200 million middle-class households by 2029) and a clean supply chain uncontaminated by Chinese infiltration, India holds leverage that explains its surprisingly tough stance in tariff negotiations. With US exports representing under 4% of India’s GDP, even 50% tariffs would impose merely a 1 percentage point GDP impact. The key to winning India’s alignment lies not in pressure but in enabling industrial upgrading—whoever provides technology transfer and capital for India’s transition from primary-sector dependence (still employing 40-50% of the workforce) will likely secure its geopolitical tilt.

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