Invesco's Chief Investment Officer (Asia ex-Japan) has released the mid-2026 investment outlook for Asian equities. Asian stock markets have shown a mixed performance year-to-date, but the overall trend remains broadly positive.
North Asia has led the gains, with Taiwan and Korea benefiting from sustained strength in semiconductors, the AI-related supply chain, as well as memory chip recovery and improving export momentum. China has rebounded, driven by policy support and robust performance in technology and innovation-driven sectors. Meanwhile, markets in India and ASEAN have exhibited more uneven performance due to currency volatility and external uncertainties.
The firm maintains a constructive view on Asian equities for the second half of the year, citing resilient growth drivers and a gradually improving risk environment.
Artificial Intelligence and Semiconductors as Core Drivers
Invesco anticipates that the AI-driven semiconductor cycle will remain a key structural growth driver in the second half of 2026. North Asia, particularly Taiwan and Korea, is expected to be the primary beneficiary, given its dominant position in the global semiconductor value chain. Looking ahead, continued investment in data centers and the acceleration of enterprise AI adoption are projected to remain major growth catalysts. Global semiconductor revenue is forecast to reach $975 billion in 2026.
A significant source of this ongoing momentum is expected to come from the persistently increasing capital expenditures by major cloud service providers, which are projected to approach $750 billion in 2026 as they massively scale up AI capacity. This is likely to further strengthen demand in both the logic chip and memory segments. Advanced memory used in AI systems is expected to remain the area with the most constrained supply.
Consequently, strong and sustained demand may continue to support higher pricing levels and improve earnings visibility across the semiconductor value chain through 2027.
China's Growing Role in the AI Cycle
Beyond North Asia, China is also expected to increasingly benefit from the AI-driven growth cycle, supported by robust policy backing, increased investment from domestic tech companies, and a vast user base driving rapid adoption. AI-related spending is fueling demand for cloud services, data centers, and supporting infrastructure.
Notably, China's AI ecosystem boasts significantly lower development and operational costs with high efficiency, creating a compelling cost-benefit advantage relative to global peers. As applications broaden, the benefits are expected to extend from hardware to areas like industrial automation and consumer platforms, positioning China as an increasingly important and diversified contributor to the Asian AI growth story.
ASEAN's Position in the AI Hardware Supply Chain
ASEAN markets are also becoming better positioned to benefit from the AI hardware cycle through supply chain participation. Singapore is expected to capture value in the high-end segments of the ecosystem, leveraging its advanced manufacturing and R&D capabilities, while maintaining strong electronics exports amid robust AI-related demand.
On the other hand, Malaysia continues to play a crucial role in semiconductor assembly, testing, and packaging, accounting for a meaningful portion of global capacity and attracting investment to expand advanced packaging capabilities related to AI applications.
Geopolitical Risks and Market Outlook
Looking forward, geopolitical developments in the Middle East are expected to remain a key macro risk, primarily through their impact on energy markets. Potential supply disruptions, especially risks to shipments via the Strait of Hormuz, have already pushed energy prices higher, and prices may remain elevated amid ongoing uncertainty. As most Asian economies are net energy importers, higher energy costs are expected to increase input costs, trade deficits, and currency volatility, particularly for smaller ASEAN economies like the Philippines and Thailand.
Larger economies, including China and India, are expected to demonstrate relatively better resilience due to more diversified energy sources and stronger policy support. Overall, the firm believes Asia may continue to face a complex policy environment, as energy-driven higher inflation could limit central banks' ability to cut rates and, in some cases, potentially delay or reverse easing measures.
From a market perspective, Asian equity valuations remain relatively attractive, supported by resilient earnings growth, despite the recent rally. Compared to the US market, Asian equities have been trading at a discount. Despite the recent rebound in the Korean market, its valuations remain appealing, as solid earnings growth—particularly in the technology and AI-related sectors—tends to support fundamentals. In India, valuations have also become more reasonable recently, with corporate earnings providing support.
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