Finding opportunities in Asia equities amid the selloff

Korea: The Memory Super-Cycle Has Further to Run

Starting with Korea, due to the ongoing memory shortage as AI demand outstrips supply, earnings expectations for 2026/2027 have seen an incredible 183%/243% positive revision since the beginning of the year. This has been the driving force for the impressive market returns year-to-date. Understandably, investors are questioning the sustainability of these earnings, and the valuation multiple for Korea has declined by over 50% to just a 4x forward P/E.

We came into the year positive on Korean equities, and this remains one of our preferred regions. We continue to be of the view that memory supply and demand will likely stay tight at least into 2028 and potentially beyond. The risk/reward skews positively at this juncture in the markets after the significant near-term pullback.

Taiwan: The Picks-and-Shovels of Global AI

Similarly, Taiwan has been the key manufacturer of leading-edge logic chips that are used for training and inferencing in the rapid adoption of AI across the world. With semiconductors and tech hardware representing 86% of the MSCI Taiwan Index, it provides direct exposure and is a clear beneficiary across the entire AI supply chain. This has driven positive earnings revisions of 38%/53% for 2026/2027 and has been the key driver of Taiwan's above-market returns in 2026.

With our current expectations for 2026/2027 earnings to grow by 69%/33%, we view Taiwan's valuation at 18x forward P/E as attractive and continue to recommend the region. Taiwan, alongside Korea, remains some of the cleanest expressions of the global AI hardware theme and sits at the heart of our preferred Asia equity positioning.

China: Headwinds Persist, Patience Required

There have also been notable detractors in Asia equity markets – both Offshore China and Onshore China's equity performance so far this year has been underwhelming. With the domestic economy showing continued signs of slowing down, local governments prioritizing fiscal consolidation, a stronger currency, and heavy AI capital expenditure weighing on reported earnings, this has translated into 2026/2027 consensus expectations declining by 6%/5% through September this year.

We have been tactical with Offshore China equities this year and lowered our recommendation at the end of August to neutral given these growing headwinds. We currently expect earnings growth in 2026/2027 of 9%/12%, and with a valuation at 10x forward P/E, we do not find Offshore China compelling and retain our neutral view. We continue to monitor policy support, AI localization progress – where local chips are expected to meet 80% of China's AI infrastructure demand by 2028 – and the pace of internet-platform monetization as potential catalysts for a more constructive stance.

India: De-rating Reflects a Weaker Earnings Profile

Many of the macro headwinds this year, including higher oil prices, a stronger US dollar, and rising global interest rates, have been challenges for the Indian equity market. With the added concern of AI disruption risk for labor outsourcing businesses such as call centers and IT consulting, it is unsurprising that the Indian equity market has underperformed. This is apparent in earnings, which have seen negative revisions of -3.5% in 2027. We have also witnessed a de-rating in the premium valuation that Indian equities have historically commanded relative to Asian equities, as earnings growth is currently less impressive compared to other Asian regions.

With an expected earnings growth in 2027/2028 of just 7%/11% and a valuation at 18.4x forward P/E, we do not find the risk/reward attractive and keep our neutral rating. Longer-term structural themes – including physical AI, electronics manufacturing, defense, and a power grid buildout – remain compelling, but the near-term earnings profile does not yet justify a more constructive stance.

Japan: Strong Earnings, but Awaiting a Better Entry Point

Similar to developed markets such as the US and Europe, Japan has seen exceptionally strong earnings revisions this year, with 2026/2027 estimates now 16%/14% higher than at the beginning of 2026, and this has driven the TOPIX higher by 17% year-to-date. While technology has benefited from the AI infrastructure buildout, there has also been broad strength across other sectors such as industrials and financials, where rate hikes from the Bank of Japan rate have been particularly impactful.

While we hold a positive view on the earnings growth outlook for Japan at 25%/8% in 2026/2027, we find valuations at a forward P/E of 16x mildly high relative to history. We retain a neutral view on Japan and await a better entry point before turning more decidedly positive.

Investment implications

In the next couple of weeks, markets are receiving earnings results from the large US hyperscalers and semiconductor supply chain companies, and the midterm elections will be concluded, which could remove some of the uncertainties and overhangs in the market at the moment.

Looking further ahead, as we put forth in a previous report on Emerging Markets, EM is no longer just a tactical trade on low valuations – it is increasingly a strategic allocation to the industries the world now needs most: semiconductors, advanced manufacturing, critical commodities, and AI infrastructure. Asia sits at the core of that case. Taiwan and Korea offer direct beta to global AI compute through the hardware and memory supply chains, while China provides selective exposure to AI localization and platforms. For investors seeking to express the theme more broadly, thematic strategies spanning the AI value chain and EM equity managers can complement single-country exposure.

Our message to investors is to stay allocated to AI and tech as the capex cycle, earnings trajectory, and supply-demand backdrop remain intact. We view the current volatility as an opportunity to add high-conviction exposure on weakness rather than a reason to retreat. However, right-sizing those allocations is key. The concentration risk is real: Korea and Taiwan already represent more than half of the MSCI EM (Emerging Markets) Index, and significant overweights could leave portfolios heavily dependent on a single theme. Pair conviction AI exposure with uncorrelated sources of return, and maintain diversification across regions and asset classes. The recent market volatility is uncomfortable, but it is the price of admission to one of the most important investment themes of this decade. Our conviction remains unchanged – and the dispersion within Asia offers a rich opportunity set.