Key points
- Market sentiment towards Asia - particularly China - may be starting to turn after a prolonged period of underperformance and derating.
- Selective opportunities are emerging across Chinese consumer names, Indian financials and ASEAN markets.
- Geopolitical and macro risks remain, but these are increasingly being priced in, creating potential for upside surprise.
- A disciplined, bottom-up approach is essential to navigate complexity and uncover value.
For some time now, global investor sentiment towards Asian equities - especially China - has ranged from cautious to outright bearish. Tariffs, regulatory overhang, and geopolitical tensions have weighed heavily on the region’s investment case. And yet, we are now seeing signs that the worst may be behind us.
While risks are still present, the shift in sentiment and the disconnect between fundamentals and valuations are creating selective opportunities for long-term investors. In my view, this is a moment where it pays to look through the noise and focus on bottom-up fundamentals with compelling valuations.
The tariff narrative is evolving
Geopolitical risk remains a central theme in Asia. The US-China relationship is still fraught, and while tariffs may be easing in tone, I believe we should be prepared for the possibility of further non-tariff measures - such as an expanded Entity List or sanctions targeting specific sectors of the Chinese economy.
But rather than retreat, I saw recent uncertainty as a buying opportunity. During the sharp sell-off around March and April, dubbed “Liberation Day” by some, I added to names like Tencent, which I felt had been overly punished. Tencent’s share price had dropped significantly, even though the company was showing strong signs of AI-driven monetisation potential in its core advertising and gaming businesses. At those levels, the risk/reward trade-off was compelling.
AI: A selective play, not a broad bet
AI has dominated headlines and investor flows, but I remain cautious about broad technology exposure in portfolio. The portfolio is currently underweight the sector - by a double-digit margin.
While the likes of Nvidia and TSMC have seen outsized demand as “enablers” of AI, I believe the market has overlooked companies that will benefit from applying AI, rather than building it. Tencent is a good example of a business likely to see material improvements in ad targeting and monetisation through the use of AI. In contrast, I have reservations about names like Alibaba, which are aggressively scaling cloud operations in a highly competitive environment.
This is not a call against AI, it’s a call for discernment and a focus on some capital expenditure discipline coming into tech budgets as companies work through how to adopt AI into their business. Therefore, I think the euphoria in AI hardware is not necessarily matched by earnings outlook. However, I do see some underappreciation of the impact for companies who could be successful in AI adoption
Resilient, not reckless: The new Chinese consumer
Much of the investment community remains bearish on China’s consumption outlook. That’s understandable, consumer confidence was shaken during the pandemic, and concerns over employment and income security persist.
However, on the ground in cities like Shanghai and Hong Kong, a more nuanced picture is emerging. Chinese consumers may be spending more selectively, but they are still spending - especially on experiences and lifestyle upgrades. We’re seeing this in the resurgence of Macau casino operators and in names like Anta Sports, which taps into the post-COVID wellness trend.
This is not an indiscriminate recovery story. It’s about identifying structural winners in a challenged macro environment - companies that can capture consumer wallet share even in slower growth conditions.
Contrarian moves in Indian financials
India’s financial sector has faced a wall of worry in the past year. Concerns around tightening liquidity, competition for deposits, and potential non-performing loan cycles in consumer lending have kept sentiment depressed.
This is precisely what attracted us. In names like Cholamandalam Investment & Finance and Axis Bank, we found companies with strong long-term positioning that had been oversold. Cholamandalam’s valuation fell by over 25% in a short period, despite fundamentals remaining sound. We used that window to add to the position, and early results have been positive.
This is classic contrarian investing: leaning in when the market is leaning out, provided the investment thesis is intact.
ASEAN: Overlooked, underappreciated
ASEAN markets continue to be largely ignored by global investors, with attention concentrated on the US, China, and broader geopolitics. But this “forgotten child of Asia” is showing signs of life.
In Thailand, for example, sentiment has been battered by everything from political instability to an earthquake. And yet, companies like Bangkok Dusit Medical and CP All (a 7-Eleven franchise operator) are executing well. We’re not expecting fireworks, but even a shift from “less bad” to “neutral” sentiment could be enough to drive a re-rating.
We’re also seeing interesting dynamics in companies like Sea Ltd, headquartered in Singapore but listed in the US. It’s a rare example of an integrated ecommerce and fintech platform with structural advantages, such as in-house logistics, and improving unit economics across key markets like Indonesia and Brazil.
The liquidity wildcard
Finally, one macro consideration I’m keeping a close eye on is liquidity—particularly as Japan begins to shift its monetary stance. If Japanese rates continue to rise, capital may be repatriated, tightening liquidity in other markets like the US.
In a relative world, that could be supportive for Asia ex-Japan. After years of underperformance relative to developed markets, we may be at the beginning of a regime change.
Asia is not without risk. But much of that risk is now well understood, and, crucially, priced in. Meanwhile, many companies across the region are showing resilience, adaptability, and in some cases, mispricing relative to fundamentals.
This is not a moment for blanket regional exposure. But for those prepared to go deeper, to be selective and long-term in outlook, Asia may once again prove a powerful source of returns.
