Fast reading
- Companies in the AI space have performed well – but this has driven market concentration.
- China remains relatively undervalued, creating a more balanced risk‑reward profile.
- In India, valuations remain elevated. With expectations still high and external risks becoming more visible, the balance of outcomes appears less favourable than elsewhere in the region.
- South Korea and Taiwan remain central to the AI trade, with semiconductor supply chains delivering strong earnings and performance. Yet the valuation picture is more nuanced than it first appears.
When we look at the Asia ex‑Japan region today, the dominant framing is increasingly one of contrast. Not a lack of opportunity, but a narrowing of it. Leadership has become more concentrated, returns more dependent on positioning, and the line between momentum and valuation more finely drawn.
The strength of artificial intelligence (AI)‑related companies across the region is undeniable. Earnings expectations have risen, capital has followed, and performance has reinforced itself. Yet markets are no longer moving evenly. A relatively small group of names is doing much of the heavy lifting, with capital repeatedly recycling into the same perceived winners. In that sense, flows have become at least as important as fundamentals in determining outcomes.
That’s not unusual. We’ve seen similar patterns before. At points such as 2000 and, more recently, 2020, powerful structural themes coexisted with increasingly narrow market leadership. The opportunity set did not disappear, but it became more asymmetric. Upside remained, but the margin for error tightened, particularly where valuations were already discounting strong and sustained outcomes.
That feels relevant again today. AI is clearly reshaping parts of the earnings landscape in Asia, but the market response has been uneven. Capital has been drawn into a concentrated subset of companies, reinforcing both performance and benchmark concentration. The result is a growing divergence between crowded growth and more overlooked areas where expectations remain subdued.
China: valuation as a starting point
China continues to stand apart in this regard. After a prolonged period of weak sentiment and sustained capital outflows, valuations remain undemanding, with parts of the market trading at around 11x forward earnings. That starting point matters. It does not require a strong cyclical recovery to generate reasonable outcomes; rather, it creates a more balanced risk‑reward profile.
Our focus, therefore, is less on finding high growth and more on identifying where expectations have already adjusted. In a market where capital allocation discipline is beginning to improve, there are areas where downside appears better protected than in more crowded parts of the region. The challenge is not opportunity, but selectivity, particularly in avoiding those segments still facing structural headwinds.
South Korea and Taiwan: strong momentum, rising expectations
In Taiwan, the structural story remains compelling, but much of the technology complex now appears priced for continued strength and near‑perfect execution.
South Korea and Taiwan remain central to the AI trade, with semiconductor supply chains delivering strong earnings and performance. Yet the valuation picture is more nuanced than it first appears.
In South Korea, the KOSPI Index does not look expensive. Samsung Electronics, which we hold, and SK Hynix1, where we are underweight, trade on forward multiples of around 6–7x despite share price gains of roughly 173% and 218% year to date. We believe that, rather than signalling pessimism, these low multiples reflect expectations of exceptionally strong near‑term earnings driven by demand for high‑bandwidth memory.
This matters. When earnings are elevated, multiples can compress even as prices rise, masking how much optimism is already embedded. The key question is therefore one of durability. If current conditions prove cyclical, the margin for error becomes narrower than headline valuations suggest.
Our positioning reflects that balance. We retain exposure through Samsung, where valuation, balance sheet strength and diversification provide a more favourable asymmetry. By contrast, we remain cautious on more concentrated, higher‑beta names such as SK Hynix, where outcomes are more tightly tied to a single part of the cycle.
In Taiwan, the structural story remains compelling, but much of the technology complex now appears priced for continued strength and near‑perfect execution. As in South Korea, expectations have risen, and with them, the risk of disappointment.
India: strong story, tighter valuation constraints
India presents a different form of asymmetry. The structural growth narrative is well understood and widely owned, but the near‑term picture is somewhat less clear. Investment momentum has yet to reaccelerate decisively, and there are signs that fundamentals may be softening at the margin.
Valuations, however, remain elevated, at around 24x forward earnings. That combination leaves limited room for disappointment. With expectations still high and external risks becoming more visible, the balance of outcomes appears less favourable than elsewhere in the region. We therefore remain underweight, finding it difficult to justify current multiples in the absence of a clearer reacceleration in growth.
India: strong story, tighter valuation constraints
Thailand, by contrast, sits at the other end of the spectrum. It remains out of favour, with valuations reflecting a cautious view following a period of political and macro uncertainty.
Yet it is precisely this lack of enthusiasm that creates a different opportunity set. Positioning is light, expectations are modest, and the bar for positive surprise is lower. That does not remove risk, but it changes its nature. Compared with more crowded markets, downside appears more contained, while recovery potential is less fully priced.
Bringing it together
Across the Asia ex‑Japan region, the divergence is becoming more pronounced. On one side, a relatively narrow group of companies, closely tied to the AI theme, continues to drive performance, supported by strong narratives and persistent flows. On the other, a broader set of markets offers less immediacy, but in some cases, more supportive valuations.
Our approach is to balance these two forces. We remain engaged with the structural themes shaping the region, recognising their importance for long‑term returns. At the same time, we retain a clear discipline around valuation and position sizing, particularly where expectations appear most elevated.
History suggests that periods of narrow leadership rarely persist indefinitely. They tend to evolve, often subtly at first, before more decisively. When they do, the opportunity set broadens again, but typically for those willing to look beyond the consensus ahead of time.
For now, that tension between momentum and discipline remains, in our view, the defining feature of markets in Asia ex‑Japan.
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1 The above does not represent all of the securities held in the portfolio and it should not be assumed that the above securities were or will be profitable. This information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
2 Source: Bloomberg as at 11 June 2026. Past performance is not a reliable indicator of future performance.
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