Stars align for Asian equity markets to outperform

Asian equity markets are positioned to outperform in the second half of 2025, supported by an increasingly favourable macroeconomic backdrop and compelling structural opportunities. As active investors through our Asia High Conviction strategy, we expect domestic growth dynamics, technology leadership in AI and greater consumer spending to drive potentially attractive returns.

A favourable rates and currency environment

The macro environment for Asian equities is improving, driven by four key developments:

1. The Federal Reserve is expected to resume rate cuts in the autumn, with the Fed funds rate forecast to decline from a 4.25-4.50% range to a more neutral level of 3.5% by mid-2026. This dovish pivot reflects confidence that inflation pressures are moderating, while growth concerns may warrant monetary accommodation. For Asian markets, lower US rates reduce the opportunity cost of holding regional assets and improve relative yield differentials
    
2. The US dollar has shown signs of sustained weakness, declining around 8% from its February highs. This weakness is particularly pronounced against Asian currencies, as evidenced by the Taiwanese dollar's significant appreciation in May 2025. Analysts estimate that Asian exporters and institutional investors may hold USD 2.5 trillion in dollar assets, creating the potential for substantial repatriation if the currency continues to weaken and confidence in US assets wanes. We expect Asian equity markets to be a key beneficiary of this shift in global asset allocation flows
    
3. Regional central banks are undertaking aggressive easing cycles, led by India’s 75 basis points (bps) of cuts in 2025, with more to come if conditions remain favourable. China’s central bank has also implemented multiple easing measures, while Korea, Indonesia, the Philippines and Thailand have all lowered policy rates. This coordinated easing provides support for domestic liquidity and reduces funding costs across the region, which are beneficial for equities 

FIG 1. Key rate and US dollar FX trends across Asia¹

4. Easy credit conditions across southeast Asia, India and China also support corporate borrowing. The combination of central bank easing and redeployment away from US assets creates a particularly supportive environment for risk assets. This liquidity surge should drive significant inflows into Asian risk assets such as high yield credit and equities, in our view.

Read more: Positive macroeconomic drivers for Asia bonds are in play

Growing AI deployment in Asia

Differentiated investment themes in India, China and Korea could also serve as additional levers for outperformance. 

Asia’s AI and tech sector is set for a breakout in H2 2025, driven by the long-awaited build-up in AI deployment. Improved downstream production yields are smoothing earnings volatility, while global AI monetisation trends, especially from Western cloud giants, continue to shape demand visibility for Asian players. High-power computing demand shows no signs of slowing, reinforcing Asia’s dominance in advanced semiconductor manufacturing. Meanwhile, edge AI adoption is gaining traction, with a wave of AI agent product launches expected to accelerate device-side intelligence. The ‘China-for-China’ supply chain is also scaling up rapidly to meet robust local demand, creating new opportunities for domestic champions. We remain constructive on upstream chipmakers, AI server component suppliers and edge device innovators as structural tailwinds strengthen into the year-end.

Read more: Is DeepSeek² unique? What China’s generative AI breakthroughs mean for equity investors

China has achieved a significant economic rebalancing over the last 10 years, from old economy leaders (banking, real estate, old-style industrial firms) to new technological supply leaders led by key brands. These new integrated technology firms have achieved significant scale in China over the past five years with their leading products. They are now in the process of stepping confidently onto the global stage, gaining market share across automobiles, batteries, robotics, consumer electronics and aerospace. 

Rising spending power

Asia’s consumption patterns are undergoing profound structural changes, as economic conditions stabilise, digital adoption deepens and generational spending power grows, especially among the younger population. Three key trends stand out: 

• The rise of experiential spending: where travel, dining, and entertainment services are being driven by digital platforms
• Emotional value: younger consumers are prioritising products linked to identity and leisure that thrive on emotional engagement, such a gaming and pop-culture collectables 
• Gen Z’s digital-first habits: low brand loyalty, relentless price sensitivity and a preference for social commerce will enable agile e-commerce platforms and digitally savvy brands to capture trends.

Finally, the combination of accommodative monetary policies and regulatory tailwinds also supports structural growth for wealth product demand in Asia, which should steer flows into regional equity markets.