ASEAN Equity Strategy: Positioning for a more hawkish Fed

Following the FOMC's 25bp rate hike, markets continue to price a higher-for-longer rate path, with the latest dot plot pointing to another rate hike in 2026. UBS expects the next rate hike in December. During past Fed tightening cycles, ASEAN markets have typically seen their deepest correction in the first three months following the initial hike, declining by an average of 7.4% before gradually recovering over the subsequent six months. With policy tightening still underway and external balances deteriorating across parts of ASEAN, the backdrop for equities is becoming more challenging despite attractive valuations, with 57% of MSCI ASEAN stocks still trading below historical averages. Returns have been more sensitive to changes in US real yields than nominal yields;