Can Asia's AI frontrunners stay the course?

When we think about Asia ex‑Japan 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 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 have seen similar patterns before, such as in 2000 and 2020, when 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 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

These countries remain central to the AI trade, with semiconductor supply chains delivering strong earnings and performance. Yet the valuation picture is more nuanced. In South Korea, the KOSPI does not look expensive. This should not signal pessimism, because the demand for high-bandwidth memory is driving strong near‑term earnings and low multiples for some key tech companies. 

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.

In Taiwan, the structural story remains compelling, but much of the technology complex now appears priced for continued strength and near‑perfect execution. 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, but the near‑term picture is 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.

Thailand: out of favor, but not without merit

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 Asia ex‑Japan, 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.

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.