Asia ex-Japan Equities: From Jitters to a Conviction Rebuild

Key Highlights

• Earnings revival into 2026: Asia ex-Japan (AxJ) earnings are projected to grow 19% in 2026, meaningfully outpacing global developed markets.
• Valuation remains compelling: Despite strong performance in 2025, AxJ equities continue to trade at a deep discount to global peers, providing downside buffers.
• Technology-led growth engine: North Asia’s AI–semiconductor ecosystem anchors the region’s earnings acceleration.
• Policy headroom supports stability: Fiscal, monetary, and structural reforms across China, India, Korea, and ASEAN enhance resilience.
• Portfolio reallocation catalyst: Persistent global underweight positions suggest scope for sustained capital inflows.
  
  

Asia ex-Japan equities have staged a remarkable comeback in 2025, delivering gains exceeding 30% and marking their strongest performance since 2017. This resurgence has not been driven by sentiment alone, but by a convergence of improving macro conditions, stabilising geopolitics, and a powerful earnings inflection, particularly in North Asia. After a year dominated by tariff anxieties and earnings downgrades, markets are now shifting focus from what has been priced in, to what lies ahead.

A critical turning point has been the fading impact of tariff risks. While US trade rhetoric initially unsettled markets, 2025 ultimately revealed tariffs as a negotiating lever rather than an escalation trigger. As volatility subsided, investor confidence gradually returned. With much of the earnings damage already reflected in valuations, the stage is set for a more durable recovery.

Looking ahead, earnings growth is the central pillar of the AxJ investment case. Benefitting from a lower base and easing macro headwinds, regional EPS growth is forecast at approximately 19% in 2026, versus around 12% for global peers. This acceleration is spearheaded by technology-heavy North Asian markets; China, South Korea, and Taiwan, which sit at the heart of the global AI and semiconductor value chain. From advanced memory and foundry leadership to AI platforms and open-source models, the region commands an ecosystem unmatched in scale and integration.

Valuations further strengthen the proposition. AxJ equities continue to trade at a substantial discount to developed markets, well above historical norms. This disconnect stronger growth at lower valuations, creates a favourable asymmetry for investors, offering both capital appreciation potential and resilience against market drawdowns.

Beyond North Asia, Southeast Asia and India add balance and diversification. ASEAN economies benefit from domestic consumption, digitalisation, and improving financial depth, while Singapore stands out as a stable compounder with attractive dividend yields from REITs and financials. India, despite recent relative underperformance, remains a long-term structural winner underpinned by demographics, infrastructure spending, and manufacturing expansion.

Policy flexibility remains another underappreciated advantage. Across the region, governments retain ample room to stimulate growth through fiscal easing, structural reform, and targeted capital market initiatives, supporting both earnings visibility and investor confidence.

Conclusion
Asia ex-Japan equities are entering 2026 with a rare alignment of forces: re-accelerating earnings, attractive valuations, policy support, and improving investor sentiment. Despite the strong rebound, global portfolios remain structurally underweight the region, suggesting that the reallocation cycle is still in its early stages. For investors seeking growth at a reasonable price, supported by both structural and cyclical tailwinds, Asia ex-Japan stands out as a compelling destination in a shifting global investment landscape.

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