It’s remarkable that as recently as 2020, China made up almost 40% of the regional benchmarks. Today, it’s just 24%. In its place, we’ve seen India’s contribution double in just four years from 9% to 18% today. Meanwhile, the tech-heavy Taiwan market has risen from 12% to 19% over the same period.

These changes reflect the region’s shifting economic landscape (Chart 1). India is rising as an economic superpower, as the growth balance tilts increasingly away from China.

Investor concerns over China have tarnished Asian markets. However, this overlooks the excellent progress the broader region has made in recent years in strengthening its economies, shoring up its currencies, creating employment, adopting technology, and driving innovation. Today, little of this is priced into markets with the MSCI All Country Asia-Pacific ex-Japan (MXAPJ) Index trading at a discount to the US and wider world. [1]

India’s index position rising (at the expense of China)

China's economic rise since the 1980s has been remarkable, increasing its global economic share from 2% in 1990 to 18.4% in 2021. That said, since 2020, regulatory crackdowns, and economic challenges have led to market underperformance.

Meanwhile, India is emerging as an attractive alternative for investors seeking Asian growth exposure (Chart 3). Its economy has consistently grown above 6% recently – driven by a young workforce and economic reforms. Its weighting in the MXAPJ Index has risen from 9% to 18%, while China's has halved to 24%.

AI and tech boom benefiting Korea and Taiwan

Tech is eating the world, and Asia is the centre of global innovation. Regional companies are at the forefront of emerging technologies such as 5G, AI, and electric vehicles. We believe Asia’s tech hardware and semiconductor supply chain names are the real winners.

Taiwan and South Korea are at the cutting edge of the global technology boom, especially in semiconductors and AI. Both countries are key players in the global tech supply chain, benefiting from the increased demand for advanced technologies.

The region's tech supply chains are becoming more resilient and diversified, and investments in advanced manufacturing capabilities are strengthening Asia's competitive edge (Chart 4).

Shifting supply chains proving a boon for Southeast Asia

Southeast Asia is fast emerging as an attractive alternative manufacturing and sourcing destination, as multinational corporations seek to reduce their reliance on China and mitigate geopolitical risks. Two countries stand out. Vietnam is seeing foreign direct investments pour into higher technology sectors, especially automotive and electronics (Chart 5).

Companies largely looking cheap

Final thoughts

Asia offers a plethora of opportunities beyond China, underpinned by a dynamic India, AI innovation, the tech boom, and Southeast Asia’s growing role in shifting global supply chains. Understanding these positive structural themes is crucial for navigating the complex Asian market and identifying potential areas for growth and returns in the years ahead.

Current valuations present a compelling entry point for Asian equities. We believe investors who delay may miss out on the potential upside, as the market recognises these favourable conditions.

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¹ The MSCI All Country Asia-Pacific ex‐Japan (MXAPJ) Index is an unmanaged index considered representative of Pacific region stock markets, excluding Japan. The index is computed using the net return, which withholds applicable taxes for non‐resident investors.
² "The world’s fastest-growing big economy is living up to its billing." CNN Business, February 2024. https://www.cnn.com/2024/02/29/economy/india-gdp-growth-economy/index.html.
³ Bloomberg, MSCI AC Asia-Pacific ex Japan Index (USD), July 2024. https://www.bloomberg.com/quote/BMAJRHK:HK.
⁴ The MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 2,760 constituents, the index covers approximately 85% of the global investable equity opportunity set. DM countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US. EM countries include: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
⁵ The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.