Rediscovering the allure of Asia
2025 was a banner year for Asian stock exposure particularly Chinese technology, Taiwanese semiconductors, Japan and South Korea. Despite strong performance from each of these Asian stock segments, foreign investors remain underexposed to Asian stock markets in favour of the US. In addition, Asian equities have shown large underperformance to US equities since 2009.
Corporate governance reforms with a consequent improvement in profitability and shareholder returns have been very evident in Japan and latterly in South Korea, while the heavy technology hardware and e-commerce exposure to the Asian technology and industrial sectors has begun to profit from the broadening investment in AI-related beneficiaries.
Broad domestic retail and institutional investor participation is a new feature of the 2025 Asian stock market rally, underlined by huge southbound investor flows from Mainland China into Hong Kong-listed technology stocks. We expect further positive momentum both in terms of profitability and retail investor sentiment and we focus on key areas of technology including semiconductors, industrial automation and robotics, plus batteries and critical metals.
Our recommendations
A theme focused on increasing allocations to the Asia region.
- Equity‑focused solutions including structured‑product offerings that provide exposure to listed equities.
- Sector‑specific funds and ETFs targeting humanoid robotics, industrial automation, advanced battery technologies, and rare‑earth metal production, as well as the semiconductor value chain (memory chips, sensors, graphics processors, and central processing units).
- Thematic funds and ETFs concentrating on domestic tourism in Japan and South Korea and on video‑gaming and e‑gaming markets in Japan and China.
- Emerging market funds and ETFs featuring foreign‑exchange hedging and a focus on domestic equities in China and Japan, with an emphasis on small and mid‑cap companies.
- Sovereign bonds of emerging markets issued in local currency and providing exposure to countries such as Malaysia and Indonesia.
Key risks
- Policy uncertainty in China as stimulus is not enough and the property market relapses into a downturn which impacts consumption. This would increase the risk of persistent deflation and rising loan defaults.
- The return of the bond vigilantes as Japan loses control of the long-end of the curve, creating volatility in the yen and long-term bond yields.
- A trade war re-emerges between the US and China.
- A major downturn in the technology Capex cycle in the event of an AI bubble, and if Northern Asia is geared to this spending.
- A stronger US dollar leading to tightening financial conditions in Asia. Rate cuts become much more difficult as Asian countries need to support their currencies.
We invite you to go further by reading and watching each investment theme
