- Asia is powering the global AI boom, but returns are increasingly driven by just a handful of semiconductor stocks.
- The AI rally is backed by earnings, though lofty expectations leave little room for disappointment.
- Many attractive opportunities lie beyond AI, with under-owned companies trading on compelling valuations.
- In today's concentrated market, active stock selection may matter more than broad index exposure.
I’ve spent a lot of time talking about Asia as a growth story, but if you look at markets today, it’s really become a story of concentration.
That’s not unique to Asia. Globally, we’re seeing capital pile into a small number of companies tied to the next wave of innovation. Whether it’s the ongoing momentum around AI companies like Anthropic, or the anticipation and hype around names like SpaceX, investors are gravitating to the perceived winners of the future. Asia just happens to be where much of that future is actually being built.
A handful of semiconductor companies are doing the heavy lifting. If you own them, things probably look great. If you don’t, it’s been a much tougher experience. That’s created a dynamic where returns are strong on the surface, but underneath, the market is far narrower than many investors realise. Over the last 12 months, the IT sector has been the only sector that has outperformed the MSCI AC Asia ex Japan Index. Everything else has lagged.
The driver is clearly AI. Asia sits right at the centre of that supply chain. When US hyperscalers spend on data centres and cloud infrastructure, the demand for semiconductors flows straight through to companies like TSMC, Samsung and SK Hynix. Importantly, this hasn’t just been a sentiment-driven rally. These are real businesses, producing real earnings, and the growth has been substantial.
But that doesn’t mean it’s risk-free. The tech sector is still inherently cyclical, even if it’s being treated as a structural growth story. That’s where I think expectations may be doing some of the heavy lifting. Globally, you can see that in how quickly capital is being deployed into AI and frontier tech. The narrative is powerful, but markets have a habit of getting ahead of themselves.
What’s interesting is what this has done to the rest of Asia. When one part of the market is absorbing so much attention and capital, everything else tends to get overlooked. We’re seeing that clearly today. Outside of tech, there are plenty of companies generating steady earnings, improving margins, and trading at much more attractive valuations, but they’re simply not part of the story investors are focused on.
That’s where we think the opportunity lies. Markets don’t stay this narrow forever. At some point, either the leaders pause or the rest of the market catches up. When that happens, it’s often the under-owned, under-appreciated parts of the market that can perform.
You can see that in places like China. It’s been out of favour for a while, but from the bottom up, there are still companies delivering solid earnings growth. The issue for such companies isn’t fundamentals, it’s sentiment. There just isn’t much capital being directed there at the moment.
At the same time, you’ve got macro factors in play. Oil prices are a good example. Asia is largely a net importer of energy, so higher prices create a headwind, particularly for markets like India and across ASEAN. But even there, the impact isn’t uniform. Some economies are more resilient than others, and at a company level it comes down to who has the ability to pass costs through. The positive is when oil prices fall, this can act as a positive catalyst.
That idea of pricing power is becoming increasingly important. In a world where energy costs are volatile, companies that can protect margins are in a fundamentally stronger position. It’s not a new concept, but it really matters in the current environment.
From a portfolio perspective, it’s about balance. You don’t want to ignore the tech momentum, because earnings have been strong and the trend could continue. But at the same time, you don’t want to be overly concentrated in a small number of names, particularly when expectations are heightened and positioning is crowded.
So we’ve been adjusting exposure rather than making extreme calls. Staying invested, but being mindful of the risks. And importantly, looking beyond the obvious winners to find the next set of opportunities.
If I step back, the message for investors is relatively straightforward. Asia still offers strong growth, but it’s not as simple as buying the index and getting diversified exposure. Increasingly, what you’re buying is a concentrated bet on a small number of companies tied to the global AI story.
And that may work for a while. But it’s unlikely to be the whole story.
