Key Points

• Japan’s Market Rally on Takaichi’s Victory: Japan’s Nikkei 225 surged nearly 5% to a record high after Sanae Takaichi’s leadership win in the Liberal Democratic Party fueled optimism for pro-growth policies, while the yen weakened past 150 per dollar.
• Big Tech Delays India Expansion: U.S. tech giants paused major data center deals in India amid escalating trade tensions and tariff hikes, signaling growing uncertainty in cross-border digital infrastructure investments.
• France’s Political Turmoil Hits Markets: European stocks fell as France’s CAC 40 dropped 2% following the sudden resignation of Prime Minister Sebastien Lecornu, sparking renewed political instability and driving bond yields higher.
• Cautious Return to China: Foreign investors are selectively reentering Chinese markets after record outflows, drawn by tech gains and policy pledges, but lingering capital controls and opaque regulations continue to restrain confidence.

Japan Stocks Soar as Takaichi Victory Weakens Yen to 150

Japan’s Nikkei 225 surged 4.75% to a record 47,944.76 after the ruling Liberal Democratic Party elected conservative Sanae Takaichi as its new leader, setting her on course to become Japan’s first female prime minister. Gains were broad-based, led by real estate, industrial, and tech sectors, with Yaskawa Electric soaring over 20%.

Takaichi is expected to maintain an accommodative monetary stance while promoting public-private investment, reinforcing a “high-pressure economy” approach.

The yen slid past the key 150-per-dollar level, prompting renewed intervention concerns, while bond yields climbed amid speculation of a gradual policy shift by the Bank of Japan.

Big Tech Pauses India Data Center Deals Amid U.S.-India Trade Strains

Major U.S. technology firms, including Amazon, Microsoft, and Google, have delayed leasing large data centers in India as escalating trade tensions cloud investment clarity. New projects have been on hold for over two months following Washington’s tariff hikes on Indian exports and new visa fees affecting Indian tech workers. Industry executives cite higher equipment costs and legal uncertainty as key deterrents.

While India’s data center capacity is still expected to triple by 2030, hyperscalers are adopting a cautious stance, incorporating tariff and legal risk clauses into contracts as they await greater trade stability before resuming expansion.

French Markets Slide as Prime Minister’s Resignation Sparks Political Turmoil

European equities retreated Monday, led by a sharp sell-off in France, after Prime Minister Sébastien Lecornu resigned less than a month into office, triggering renewed political uncertainty. The CAC 40 dropped 2%, while the Stoxx 600 slipped 0.4% following last week’s record highs. French banks tumbled over 5% amid concerns about government instability and fiscal gridlock, pushing 10-year bond yields to 3.6% and sending the euro 0.7% lower.

Broader sentiment remained cautious across Europe, with investors eyeing economic data from Spain and the U.K. for signs of resilience amid rising political and monetary volatility.

Foreign Investors Reassess China Amid Cautious Optimism and Policy Risks

Foreign investors are slowly regaining interest in Chinese markets after years of outflows, but deep concerns over capital controls, policy opacity, and state intervention persist. Despite Beijing’s pledges to open its economy and court foreign capital, uncertainty over market access and exit mechanisms continues to deter long-term institutional investment.

Capital outflows reached $154 billion in 2024, the lowest in over two decades, though recent buying by global hedge funds and the strong performance of Chinese tech stocks — with the Hang Seng Tech Index up 48% year-to-date — suggest selective optimism returning to the market.

Conclusion

Global markets began the week navigating a mix of optimism and caution.

Japan’s record-breaking rally underscored investor confidence in pro-growth leadership, while renewed political instability in France and trade frictions between the U.S. and India reminded markets of ongoing geopolitical vulnerabilities.

Meanwhile, foreign investors’ tentative return to China signals selective risk appetite amid structural uncertainty. Across regions, market sentiment remains resilient but cautious, balancing growth opportunities against fiscal, political, and regulatory headwinds.

As central banks maintain accommodative stances and inflation cools, investors appear poised to favor selective exposure in markets showing credible reform and stability momentum.

Investment Insights

• Japan’s momentum trade: The Nikkei’s record surge reflects renewed optimism in Japan’s pro-growth fiscal stance and weak yen tailwinds — signaling potential upside in Japanese equities and exporters.
• Tech caution in emerging markets: U.S. hyperscalers’ pause in India underscores the sensitivity of global tech expansion to trade policy; investors should monitor tariff developments before increasing exposure.
• European political risk premium: France’s leadership turmoil may introduce short-term volatility in European financials and sovereign bonds, warranting defensive positioning.
• China re-entry strategy: Gradual foreign inflows into Chinese equities highlight selective confidence — focus on tech and consumer recovery plays while hedging policy and liquidity risks.

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