Where Will Capital Go When the U.S. Fed Cuts Rates? Four Markets Poised to Capture the Flow

If the U.S. Federal Reserve begins cutting rates this September, it could lead to a major shift in capital. This move could affect not just U.S. markets but also global ones. Typically, lower rates prompt a surge into domestic cyclicals or small caps in the U.S. However, savvy investors will also consider markets where policies support equity growth and shareholder returns.

So, where might that capital land? My view: Japan, China, India, and Singapore emerge as four investible anchors in a shifting global landscape.

Why these markets?

When the Fed cuts, investors seek two things:

1. Higher relative returns – whether through valuations, growth potential, or yield.
2. Policy tailwinds– markets where regulations, reforms, or liquidity measures protect or boost shareholder value.

Let’s take a closer look.

Japan – Governance Unlock

Valuations are still appealing at around 15× forward P/E compared to 23× in the U.S. The Tokyo Stock Exchange now requires companies, particularly those trading below book value, to publish plans for capital efficiency and ROE improvement. Shareholder returns are increasing, with buybacks reaching ¥20 trillion in FY2024 and the New NISA program offering permanent tax-free equity savings.

My take:Japan is finally tackling long-standing inefficiencies and modernising its market. With global rates falling, you can expect continued improvement in Japanese equities.

China – Policy Floor + Dividends

Trading at about ~12× forward earnings with a yield around ~2.1%, China’s markets benefit from supportive policies. Stamp duties have been cut in half, SOEs must give more to shareholders, and the “National Team” is actively working to stabilise markets. The PBoC’s ongoing easing supplies liquidity support.

My take: With a softer U.S. dollar, China’s policy-backed equity market looks more appealing, despite geopolitical issues.

India – Domestic Savings Flywheel

India’s valuations are higher, roughly (~22× forward earnings), but structural inflows are strong. EPFO pensions allocate 5-15% of inflows to equities, and SIPs reached a record ₹28,464 crore in July 2025. IPO rules ensure retail allocations, promoting strong household participation.

My take: Even if global investors hesitate, India’s domestic savings engine keeps its equity markets steady, resilient and attractive.

Singapore – Liquidity Reboot + Yield Hub

With a forward P/E around 13× and a 4.6% dividend yield, Singapore enjoys tax efficiency and transparent REIT frameworks. The MAS started a S$5 billion Equity Market Development Programme in 2025 to enhance liquidity, increase listings, and incentivise ETF activity.

My take: In a falling-rate environment, Singapore’s mix of yield stability and policy-driven liquidity makes it a natural place for global capital.

Bottom Line

A Fed rate cut could speed up the flow of capital toward markets where valuation, growth, and yield are backed by policy support. Japan, China, India, and Singapore all have unique strengths that make them resilient and attractive, even in uncertain times. Diversifying across regions not only spreads currency and geopolitical exposure but also taps into markets where policy tailwinds may enhance returns. A strategic allocation today can help navigate a falling-rate environment and capture long-term growth.

Investing in a world of shifting rates requires a forward-looking approach. By understanding where capital is likely to flow, you can position your portfolio to capture opportunities while managing risk.

Disclaimer:‍‍‍‍‍‍ Investment carries certain risks. You should not just rely on results as an indication of your financial needs. You should understand and familiarise yourself with any investment and the associated risks before investing. You are also recommended to seek professional advice before making any decision to buy, sell or hold any investment or insurance product. The views and thoughts expressed in the post belong solely to us, and not to Manulife Financial Advisers Pte Ltd, or any other group of individuals.