The MSCI Asia ex-Japan Index (USD) posted a strong gain of +10.8% in the third quarter, supported by strength in Chinese equities and selective rallies in parts of the region. Markets such as Thailand, Taiwan and South Korea also posted strong returns, while India, Indonesia and the Philippines performed weakly. Investor sentiment remained stable despite continued tariff uncertainty and concerns about the global economic outlook, leaving markets cautiously optimistic rather than outright bullish.
Jian Shi Cortesi, Investment Director Asia/China growth equities at GAM, explains this by underlining that the performance of the sectors has shown a clear divergence. Communication services, information technology and consumer discretionary were the main drivers of growth, reflecting greater demand for cyclical and growth-oriented exposures. In contrast, more defensive and cyclical sectors, such as financials, utilities and energy, performed weaker.
Among the companies with the best performances stand out:
Foxconn Industrial Internet rose in the quarter on expectations that strong demand for artificial intelligence (AI) servers will boost profits.
Delta Electronics continued to rally on optimism from growing demand in data centers, power supply and thermal management.
Online broker Futu Holdings reported strong results thanks to strong trading volume in both the Hong Kong and US markets.
Our focus remains on leading sectors in Asia that benefit from large, long-term trends in consumption and innovation. We favor companies with above-average growth potential and attractive valuations in sectors linked to consumption and innovation.
Outlook
Stocks in Asia ex-Japan have rallied significantly, with a gain of 26.8% since the beginning of the year. In our view, this strong rally, driven by a justified re-rating of ratings, has not come to an end. We believe there is a strong case for further upside, supported by several tailwinds. These include: a Fed tailwind, history shows that periods of monetary easing by the Federal Reserve (Fed) and a weaker dollar create a strong tailwind for Asian stocks, a dynamic we expect will support performance; accelerating earnings momentum, the rally is gaining fundamental support, with regional earnings growth expected to accelerate next year; the ample availability of liquidity, despite strong earnings, investor positioning remains conservative, indicating significant latent demand that could fuel the next phase of growth.
While new tariffs may generate volatility, the Asian economic landscape is fundamentally more resilient than in past cycles. The region is no longer a passive participant in global trade, but is instead actively shaping its own destiny.
Thanks to greater supply chain integration, regional production networks have become more robust and self-sufficient. A growing domestic consumer base and resilient domestic economies provide an important buffer. Furthermore, Asian governments are proactively taking targeted measures to promote stability and growth.
A mosaic of opportunities
Across Asia, a significant and positive change is underway: a renewed commitment to creating shareholder value. Since 2024, markets such as South Korea, China and Taiwan have launched major shareholder return programs, while others are pursuing ambitious corporate governance reforms.
The powerful combination of growing domestic demand, self-sustaining innovation, proactive policy support and a rising wave of shareholder-friendly reforms is creating a patchwork of resilience and opportunity. We remain true to our disciplined approach, investing with conviction in high-quality companies that are best positioned to benefit from Asia’s most transformative and enduring trends. Among these are:
- Experience-driven consumption: Consumption in Asia is moving beyond traditional goods, driven by growing demand for services, tourism and personalized experiences. This trend favors companies operating in the travel, hospitality, entertainment and leisure sectors
- Artificial intelligence, semiconductors and technology hardware: Asia’s technology hardware and semiconductor industry forms the essential foundation for the global growth of artificial intelligence. This creates a powerful investment opportunity in both foundational vendors and emerging AI leaders across the region
- FinTech and wealth management: The convergence of digital adoption, rising disposable income and low penetration of financial services offers an attractive opportunity to invest in digital platforms and wealth managers ready to seize wealth creation opportunities in the region
- Renewable Energy: Asia’s urgent need for energy security and its large investments in carbon neutrality are generating significant opportunities across the entire value chain, from solar power to electric vehicles.
