Asia Stocks: AI Heat Meets Policy Crosswinds
Asian equities opened the year strong, but the path ahead isn't clean. AI-driven gains remain intact, yet fears of over-concentration and a split in rate policies across the region could raise volatility.
For finance teams and portfolio managers, this is a positioning problem: keep the AI upside without getting boxed into a narrow set of names, and stay ahead of central-bank moves that can flip flows fast.
The AI Trade: Fatigue, Not a Bubble?
Last year's winners were powered by AI. A regional information tech gauge just hit a record, helped by cheaper valuations versus US peers. The catch: exposure is concentrated in a handful of giants in Taiwan and South Korea, which heightens drawdown risk if sentiment turns.
"We're calling more of an AI fatigue as opposed to a bubble," said Ken Wong of Eastspring Investments. If AI capex slows or earnings momentum slips, the air can come out quickly.
China's Chip Push Is Accelerating
Beijing is weighing incentives of up to US$70 billion to back its semiconductor industry. Blockbuster debuts from MetaX Integrated Circuits and Moore Threads stoked demand, and more deals may follow with Baidu's AI chip unit and GigaDevice lining up.
That capital formation matters. It broadens the region's AI supply chain and adds new ways to play AI beyond a few mega-cap names.
Rates: One Region, Many Directions
The US Federal Reserve is expected to cut rates twice this year, a tailwind for Asia's risk appetite and currency stability. That opens the door for India and Thailand to ease, supporting growth-sensitive sectors. In contrast, the Bank of Japan faces pressure to raise to curb inflation and yen weakness. New Zealand has signaled it's likely finished cutting, and expectations are building for Australia to tilt hawkish.
"India's sustained low-rate environment may provide gentle tailwinds for its equity market, while further easing in Thailand, Malaysia and potentially China could boost stocks," said Dilin Wu at Pepperstone Group.
Rotation Watch: India, Indonesia, ASEAN
Some managers are rotating away from US assets and the crowded AI trade into laggards. India's NSE Nifty 50 rose 10.5% last year but trailed the MSCI AC Asia Pacific Index by the widest margin since 1998. Hopes for lower consumption taxes and eventual rate cuts could brighten earnings. Indonesia may also benefit as stimulus filters through.
"India and ASEAN are interesting for being very non-AI," said Ng Xin-yao at Aberdeen Investments. Look for resilient cash flows, low dependence on macro or politics, and high dividends.
South Korea: Momentum With Conditions
South Korean stocks delivered a 76% surge last year, fueled by AI enthusiasm and reform hopes. The KOSPI added another 2.3% Friday, closing above 4,300 and edging toward the 5,000 level targeted by President Lee Jae-myung. Semiconductor exports jumped 43% last month, underscoring Samsung and SK Hynix's central role in AI infrastructure.
The next leg depends on governance upgrades and policies that lift small caps. If reforms stall, the market's breadth could narrow again.
How to Position Now
- Balance AI exposure: Keep core positions in leading chip and enablement names, but add satellite plays across China's chip supply chain and software beneficiaries to reduce single-market concentration.
- Favor quality cash flows: Prioritize firms with steady free cash flow and clear dividend policies, especially in India and ASEAN.
- Track rate paths: Watch the Fed's cadence, BoJ policy signals, and any pivot from Australia. Easing in Thailand, Malaysia, and China supports cyclicals; a firmer BoJ favors financials over exporters.
- Watch China's chip policy and IPO pipeline: New listings can broaden investable AI exposure and improve liquidity across the supply chain.
- Rotate selectively into laggards: In India and Indonesia, focus on policy beneficiaries with operating leverage and cleaner balance sheets.
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