Charting a Distinct Course to Asia’s Awakening Equity Markets

Asian equities offer hidden value in dynamic companies across fast-growing economies.

Global investors are rediscovering Asia ex Japan (AxJ) equities. Yet, the region’s constituents move to different rhythms, shaped by distinct economies, sectors and governance regimes. So how can investors build effective exposure to AxJ markets in an era of rapid change?

Asian stocks have enjoyed an impressive run, despite volatility in early 2026. The MSCI Asia ex Japan Index surged by 28.4% in US-dollar terms over 12 months through March 31, outpacing global developed and US stocks by a wide margin. The recovery, which follows a decade of underperformance, has been driven by a resurgence of corporate earnings growth that is not yet fully reflected in valuations, in our view.

Asia’s Appealing Macro Backdrop

Economic growth provides a strong foundation for Asian equities. In 2025, AxJ economies had contributed 27% to global GDP growth, up nine percentage points from 2010 (Display). Even though China’s growth has slowed substantially from the breakneck pace of the early 2000s, AxJ economies combined are projected to expand by a healthy 5.1% in 2026—more than double the pace of the world economy and other emerging markets.

Asia’s economic growth is driven by powerful demographic forces. Excluding Japan, the continent is home to 60% of the world’s population according to the United Nations. It also has a relatively young population with a median age of 32 versus 38 in the US and 44 in Europe. And the middle-income class in Asia has more than doubled over the past decade to 2.25 billion in 2024, which accounts for 56% of the region’s total population the IMF reports. 

Regional Equity Markets Are Not a Monolith

Yet beneath the surface lies a complex mosaic of markets and economies. AxJ spans a region shaped by distinct ethnic groups, cultures and cuisines, a diversity that is mirrored in its equity markets. 

South Korea and Taiwan are tech-heavy, outward-facing economies, while India is fueled by domestic growth and infrastructure development. China offers a mix of export-driven industries and a massive domestic market, and has enjoyed improving profitability despite macro challenges. Singapore and Hong Kong are closest to developed economies. Each market is influenced by a distinct set of shifting economic cycles and industry developments.

Across the region, equity markets tend to be inefficient, with investor behavior playing an outsized role in creating opportunity. Short investment horizons, policy driven narrative shifts and heavy retail participation often result in sharp price moves that are disconnected from long term fundamentals, creating attractive entry points for disciplined active investors. As a result, we think passive index approaches aren’t best suited to deliver alpha by capturing stronger pockets of return potential in AxJ markets.  

Today, the AxJ market offers strong earnings-growth potential of 52.3% for 2026, according to consensus estimates (Display). Valuations are attractive, with the AxJ market trading at a 32% discount to the MSCI World index of global developed stocks—double the 20-year average. 

Finding Opportunities: From AI to Governance

These conditions offer fertile ground for selective investors to search for undervalued beneficiaries of the big trends that will fuel AxJ returns in the years ahead.

These include AxJ companies that are participating in the AI technology infrastructure boom, or what we call “backdoor AI.” Companies in South Korea, China and Taiwan provide many mission-critical components that support global AI products, and typically trade at discounts to US peers.

Asian companies also play a big role in the provision of critical raw materials and defense products—market segments that are seeing rising demand amid heightened geopolitical stresses.

Corporate governance improvement is another exciting theme for equity investors. South Korea and China are championing regulatory incentives for companies to pursue profitability and boost shareholder returns. Companies in both countries are paying out more to shareholders in dividends and share buybacks. 

Meanwhile, the weakening US dollar is another catalyst for AxJ stocks. Our research also shows that Asian exports have been resilient to trade shocks, with both technology and non-tech exports continuing to post solid growth since President Trump increased tariffs during 2025.

Fundamental Focus Can Get Ahead of the Market

These diverse trends share a common thread. In our experience, we’ve found that AxJ companies tend to deliver fundamental improvements well before the market catches on. In other words, active investors in AxJ stocks can use their research to identify opportunities and establish positions well ahead of the market.

That’s why we believe value equity strategies can be particularly effective in AxJ equities, by targeting companies with undervalued long-term earnings potential. We believe combining quantitative and fundamental research provides complementary perspectives that aim to discover opportunities created by investor behavior, which often prompts volatility—and mispriced shares—in AxJ markets.

To be sure, plenty of risks warrant attention. The Middle East conflict is having complex effects on emerging markets, as the energy shock fuels inflation and volatility. Deglobalization is shaking up supply chains, while China’s economic growth remains subdued. We think these risks bolster the case for taking a highly selective approach to AxJ equities.

Allocating to Asia is more than just buying benchmark exposure. Diverse markets shaped by complex global and local forces often reward local research, based on deep industry knowledge and country-specific nuance. Capturing Asia’s awakening equity potential in a risk-aware portfolio may depend less on regional beta—and more on the ability to uncover value where the market hasn’t looked yet.