Year Ahead 2026: Asian Equities
Asia delivered standout returns in 2025, powered by AI-driven capex and improving governance, but with performance sharply diverging across markets. What will 2026 bring?
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2025 marked one of the strongest years of performance for Asian markets, notwithstanding significant volatility.
Asia is the principal beneficiary of AI capex, with consolidated industry structures in Taiwan and Korea enjoying attractive returns. These markets dominate foundry, memory, server assembly, power systems and chip testing required for AI to flourish.
The region is also seeing improving corporate governance, with Korea the standout market in the region as it also re-rated amid improved dividend payout ratios and minority shareholder protection.
India and select ASEAN markets underperformed in 2025 as economic growth has been lacklustre.
Key themes expected to drive equity markets in Asia in 2026
We see three potential themes at play in Asia in 2026:
Firstly, whether AI capex spending rolls over causing a correction in Taiwan and Korea: we believe expectations around AI capex will moderate in 2026 leading to a correction in Asian beneficiaries. We would see this as a potential buying opportunity as many of these businesses remain transition positive from a technology perspective, auguring for higher longer-term returns.
Secondly, whether anti-involution (a pushback against intense competition) in Mainland China drives higher returns in select industries: the success of supply-side adjustments to overcome worsening CPI/PPI will be core to the MSCI China index returns in 2026.
And lastly, whether fiscal and monetary stimulus in India can drive a reversal in market performance: with 100bps interest rate cuts, reduction in GST and supportive macroprudential policies, policy is now very accommodative in India.
Where do we see the potentially most attractive investment opportunities?
We still don’t see China internet platforms as being expensive, with many having consolidated down into 1-2 player industries. We would call out gaming, online travel, online music, and online recruitment as areas that look most attractive.
In India, whilst we think the market remains expensive in aggregate, there are select companies in consumer technology and online insurance available at attractive valuations relative to their growth profiles. We also believe there are financial institutions that are emerging from heightened credit stress that will potentially perform well.
Dividends remain key to total shareholder returns in Asian equities. About 70% of MSCI AXJ Index returns over the past 30 years have come from dividends reinvested and there is a positive relationship between higher payouts, better corporate governance and superior real earnings growth generated. Australia and Singapore lead here but we continue to see improvements in the region, and would call out select Korean companies, pan-Asian insurers and select Mainland Chinese companies in this regard.
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