Asian equities can play a role in investor portfolios and this is becoming increasingly important in the current environment.

The investment playbook has long been anchored by the security of the Australian sharemarket, notably the ASX200. Investors have leaned on the ‘big four’ banks for yield and the mining giants for growth, supplemented by a tilt toward US mega-cap technology. However, with the ASX200 trading at record highs and forward P/E ratios stretched well above historical norms, the risks that a home bias can have on portfolios are acute.

Domestic inflation remains stickier than anticipated. This has forced the RBA into a hawkish stance that challenges some domestic equity valuations. However, our northern neighbours have entered a structural renaissance. While Asia has long been considered a ‘satellite’ allocation for somewhat speculative growth, in 2026 it has become an engine for growth, diversification and income.

These domestic issues take place while geopolitical events continue to reshape global capital markets. The extreme concentration in US assets, driven by fiscal policies that have now propelled US national debt close to a US$39 trillion^[1] milestone, is showing clear signs of peaking. At the same time, the US dollar is navigating a period of structural softening; its long-standing safe haven premium is being eroded by the gravity of the country’s debt burden and a global trend toward currency diversification.

As well as these broad global thematics, there are other, more granular reasons to consider Asian equities for your clients. Each of these will be explored in further detail in this article.

1. The ASX duopoly – the concentration of the Australian market means that many client portfolios are over-exposed to Financials and Materials. Asia offers diversity via direct exposure to a range of growth sectors, many of which are not accessible through the domestic market. This includes semiconductors, industrials and AI.
2. The income evolution – traditionally, Australian investors looked to Asia for capital growth and stayed home for dividends. However, a growing number of Asian companies are delivering record share buybacks and yields that rival our domestic income staples (such as banks), but with far superior growth runways.
3. A structural portfolio shift – large industry funds and other institutional investors are pivoting their private and public equity mandates toward Asia. AustralianSuper CEO Paul Schroder recently noted the fund is ‘just at the beginning’ of its Asian private equity expansion (Asia Asset Management, February 2026), while Aware Super’s $6bn digital infrastructure push has increasingly focused on Asian markets (i3 Insights, March 2026). This institutional appetite signals a shift from treating Asia as a volatile satellite to a core portfolio engine.

The case for Asia

For Australian investors, the case for Asia in 2026 has become stronger, driven by a fundamental shift in how global capital is allocated. As domestic valuations on the ASX face headwinds from a mature credit cycle and geopolitical factors, the Asian region offers a multi-speed growth profile that provides both a valuation cushion and exposure to sectors unavailable on the local exchange.

1. Diversifying beyond the banks and miners

For many Australian investors, diversification can be challenging to achieve in the domestic sharemarket. The S&P/ASX200 remains one of the most concentrated developed indices in the world, with 54.4 percent of the index weight tethered to just two sectors: Financials (29.5 percent) and Materials (24.9 percent)^[2]. While this has historically provided a reliable stream of franked dividends, it can leave portfolios exposed to a ‘two-engine’ economy.

The Australian market is somewhat sparse when it comes to the sectors defining investment trends and economic power in the late 2020s. Asia, however, provides the structural bridge to these missing industries, such as:

Semiconductors – while the ASX has virtually no semiconductor footprint, Asia houses the entire global supply chain. Investing in the region provides direct exposure to several companies that are the gatekeepers of global computing power, from high-end logic chips to the high-bandwidth memory (HBM) required for generative AI.

The new industrial revolution – Australia’s industrial sector is largely comprised of transport and logistics firms. In contrast, Asia offers exposure to advanced robotics, precision manufacturing and automation. As China’s 15th Five-Year Plan prioritises new productive forces, the region is seeing a surge in industrial tech firms that are automating the world’s factories. This is a sector that does not exist at scale in the domestic market.

Artificial intelligence – Asia represents the Applied AI frontier, the practical integration of artificial intelligence into tangible hardware and industrial processes to solve real-world problems. Such businesses are focused on the commercialisation of the technology and converting AI capability into immediate, scalable revenue.

A strong rationale for the Australian investor is the shift from raw materials to refined technology. Many investors’ portfolios are dependent on the price of raw lithium or nickel; an allocation to Asia also provides exposure to those companies that turn those minerals into EV batteries, energy storage systems and so much more.

2. The income evolution

The traditional home bias of Australian investors has long been justified by a single, powerful incentive: franked dividends. This has been particularly important for retirees. Historically, Asia has been considered the investment destination for capital growth, while the domestic market remained the engine for yield.

However, GSFM’s investment partner Eastspring Investments believes dividend yield has increasingly become a foundational pillar of long‑term wealth creation in Asia. A decomposition of returns for the MSCI Asia Pacific ex‑Japan Index from March 2006 to February 2026 reveals three distinct drivers: earnings growth, valuation changes through multiple expansion or contraction and dividends (figure one).

While valuation multiples can be highly volatile, swinging sharply between expansion and contraction and acting as both a tailwind and a headwind at different points in the cycle, earnings growth has been comparatively more consistent but remains subject to cyclical variation. Meanwhile the dividend component has delivered the most reliable and steadily compounding contribution to total returns over time.

Income from Asian equities is also being driven by a wave of corporate governance reforms that are forcing companies to prioritise shareholder returns over cash hoarding.

While the headline yields of Australian banks often hover between 5-6 percent, they frequently consume 75-90 percent of corporate earnings to maintain those payments. In contrast, several key Asian segments are now delivering similar total returns with payout ratios closer to 30-40 percent.

This shift is most visible in markets such as South Korea and Taiwan, where programs have incentivised boards to aggressively deploy capital back to investors. In 2025 and 2026, share buyback activity in these regions reached record highs, effectively creating a ‘synthetic yield’ that complements traditional dividends. Unlike the Australian banking sector, which is currently operating in a mature, low-growth credit environment, these high yield Asian companies are anchored in high-growth industries such as advanced semiconductors and regional logistics.

Case study: South Korea’s ‘Value-up’ Program^[3]

South Korea’s corporate Value-up Program, which reached full maturity in early 2026, has seen major conglomerates move toward a 30/30/30 model: 30 percent payout, 30 percent buybacks and 30% reinvestment.

From a yield comparison perspective, top-tier Korean financials such as KB Financial Group are currently yielding approximately 5.2 percent. This is being achieved with a payout ratio of roughly 35 percent.

3. A structural portfolio shift

The shift toward Asia by Australia’s major industry super funds is significant. Historically, Australian industry funds treated Asian markets as high-beta satellites, allocations designed to provide a small growth kicker at the expense of significant volatility.

However, the sheer scale of the Australian retirement pool, now exceeding $4.5 trillion^[4], has made the ASX a somewhat crowded trade. For Australia’s large institutional investors, Asia has become a necessary frontier for absorbing large-scale capital in sectors that offer structural longevity.

The announcement in late 2025 of a ‘strategic pivot’ into Southeast Asia was aimed at mobilising superannuation capital into the region’s high-growth sectors. The pivot was being formalised through a partnership between the Australian government and IFM Investors, specifically to target long-term opportunities in manufacturing, the energy transition and infrastructure^[5].

When institutional investors move, they create the liquidity and corporate engagement that eventually lowers the risk profile for individual retail investors. This institutionalisation provides three key benefits for client portfolios:

• The presence of large institutional funds in these markets signals that the regulatory and governance frameworks have reached institutional grade.
• Through professional managers, clients can now tap into both private and public markets in Asia, some of which were previously inaccessible.
• As the benchmark for a ‘balanced’ super fund shifts toward a higher Asian weighting, it may become easier to present a positive investment case to your clients.

The China story remains intact

GSFM’s investment partner Man Group believes the Gulf conflict indicates that the world’s second-largest economy’s push for self-reliance appears to be paying off.  China’s first quarter gross domestic product growth recently came in at 5 percent, beating expectations and accelerating from 4.5 percent in the final quarter of last year. This was mostly driven by better-than-expected exports and a rebound in infrastructure spending.

China is probably the least impacted economy in Asia from the Gulf conflict. Its reliance on oil as a share of the energy mix is considerably lower than most countries (figure two), largely because of years of investment in renewables, making its oil stockpiles go a lot further.

The structural build out continues

Meanwhile, the structural build-out continues to gather pace. China is no longer simply catching up with the US in AI. In areas like AI inference – the process of using a trained machine learning model to make predictions, decisions, or generate outputs from new, unseen data – it is beginning to overtake.

What makes this particularly significant is the phase that AI is now entering. As the technology moves from software into the physical world through robotics and humanoids, China’s manufacturing dominance becomes a decisive advantage. This is where decades of industrial capacity meet cutting-edge innovation, and it is difficult to see how competitors can close that gap quickly.

The innovation story is also broadening into biotech. The government recently signalled its willingness to reform China’s drug pricing system, recognising that ‘high level innovative drugs with a high degree of innovation and significant clinical value’ should command prices consistent with their higher investment and risk. In Man Group’s view, this likely drives further upside to an already much improved biotech sector in China.

Easing headwinds

Several persistent drags on sentiment with respect to China are also stabilising. In the property market there has been slowing deterioration, as well as some early signs of stabilisation and improvement in both sales volumes and pricing.

On deflation, higher oil prices have driven the Producer Price Index back into positive territory for the first time since September 2022, ending a 41-month streak of deflation. Consumer prices rose one percent year-on-year in March but remain well below the government’s two percent target, and core inflation (excluding food and energy) was 1.1 percent

The export question

The open question is whether China can maintain its export momentum as global growth likely slows under the weight of a more prolonged increase in energy costs. China may stand to benefit as competitors feel the drag from the energy shock and a global desire to reduce reliance on hydrocarbons sourced from the Middle East drives demand for renewables. China manufactures 92 percent of the world’s solar modules and 82 percent of wind turbines.

If global exports do eventually slow, that may become the catalyst for an internal consumption pivot. Man Group believes China has delayed consumer-related policy reform partly because the strength of its broader export volumes has offered a credible backstop to sustained GDP growth, and partly because the focus has shifted to ensuring self-sufficiency against a backdrop of increasing geopolitical fragmentation. A prolonged decline in external demand could be what finally forces China’s hand.

Asian shares are shifting from a high-risk growth satellite allocation to a core part of a well-balanced portfolio. For Australian investors, this is one of the biggest opportunities in years. By moving beyond the local focus on banks and mining stocks, and investing in areas such as AI, semiconductors and other advanced industries, you can reduce the home bias from clients’ portfolios and improve long-term outcomes. Asia is no longer just an option; it’s becoming a key foundation for building a strong, future-ready portfolio.

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Notes:
[1] https://www.us-debt-clock.com/, accessed 27 April 2026, debt figure $38.8 trillion
[2] Spglobal.com, S&P/ASX200 Fact Sheet, 31 March 2026
[3] Korea Exchange (KRX) Market Data, 2025 Annual Shareholder Return Report, January 2026
[4] ASFA Super Statistics, 30 September 2025
[5] Super funds to drive south-east Asia investment growth, Super Review, 28 October 2025

The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of GSFM, Eastspring Investments and Man Group, and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. None of Eastspring Investments, Man Group or GSFM Pty Ltd, their related bodies nor associates give any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.

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Asia-Pacific is looking underpenetrated and increasingly relevant.

Private credit is entering a more demanding phase. For much of the past decade, the asset class benefited from a highly supportive macro backdrop. Rising base rates, coupled with floating-rate structures, provided a largely mechanical uplift to income. Returns were often driven as much by macro conditions as by credit selection. That dynamic is now shifting.

Recent geopolitical developments, notably the escalation of conflict involving Iran, have complicated the outlook for inflation and monetary policy. Energy-driven price pressures have reintroduced volatility, forcing central banks into a more cautious, data-dependent stance. Interest rates are no longer expected to follow a single trajectory, with markets pricing a wider range of outcomes. For private credit investors, this marks a transition from broad tailwinds to a regime defined by dispersion, selectivity, and structure. In that environment, geography matters more.

The US market: scale, maturity, and emerging constraints

The US remains the largest and most developed private credit market, fueled by bank retrenchment and private equity expansion. This has created a deep direct lending ecosystem. But success has brought maturity and constraints.

Global private debt AUM reached about $2.5 trillion by the end of 2025, mostly in North America (PitchBook). Fundraising remains resilient, but scale has introduced pressures: spread compression, competitive deal dynamics, weaker covenants in some segments, and rising leverage. Sector exposure is concentrated in technology, software, and AI-adjacent businesses. Rapid advances in generative AI challenge assumptions underpinning these models, including pricing power, customer retention, and long-term growth. Seat-based SaaS models are increasingly vulnerable to disruption, risking margin compression and faster obsolescence.

Public markets have already reflected this shift through volatility and multiple compression. Private markets are slower to adjust, but private credit implications are clear: loans underwritten in a different valuation environment may face elevated refinancing and recovery risk, particularly for asset-light borrowers reliant on enterprise value for downside protection. The US remains indispensable, but outcomes will be more idiosyncratic, with greater dispersion driven by sector exposure and underwriting discipline.

Liquidity is being repriced: lessons from BDCs and interval funds

Liquidity structures are under scrutiny. Interval funds and business development companies (BDCs), which offer periodic liquidity, are showing strain. Elevated redemption requests, gating mechanisms, and persistent NAV discounts highlight a shift in investor perception.

This is not systemic stress but a repricing of liquidity risk. Private credit is increasingly understood as a long-duration, illiquid asset class, with conditional liquidity. Concerns are rising around underlying portfolio exposures, especially in software-heavy strategies facing AI-driven disruption. In the US wealth channel, where retail capital drives interval funds and BDCs, this has translated into higher redemption activity and sensitivity to performance dispersion.

The implications for investors are clear. There is a greater emphasis on cash yield rather than mark-to-model returns, alongside increased attention to duration, amortization, and the visibility of exit paths. Portfolio construction and the liquidity of individual assets are under heightened scrutiny. These pressures are particularly pronounced in US direct lending, where sponsor-backed, covenant-light, and asset-light structures dominate.

Asia-Pacific: underpenetrated and increasingly relevant

Against this backdrop, Asia-Pacific offers a distinct opportunity. Despite representing roughly 40% of global GDP and over 60% of growth, the region accounted for just 3.2% of global private credit capital raised in 2025 (PitchBook). Momentum is building: AUM is projected to rise from $59 billion in 2024 to $92 billion by 2027 (AIMA). More important than headline numbers is the structural imbalance between capital supply and demand.

Private credit in Asia-Pacific operates differently. Banking systems remain conservative, lending is concentrated among large corporates, and mid-market and asset-heavy sectors are underserved. This creates a persistent funding gap. Transactions are bespoke and directly originated, allowing lenders stronger structural protections. Around 90% of deals are non-sponsor, with more conservative capital structures, stronger covenants, lower leverage, and higher cash-pay income. Sector exposure is also distinct: more asset-backed and cashflow-driven sectors, such as real estate, infrastructure, logistics, and energy, rather than asset-light software businesses.

This distinction matters. In a world where AI disrupts traditional software models, lending anchored in tangible collateral and contractual cash flows offers a fundamentally different risk profile, less exposed to valuation swings and more resilient to market sentiment shifts. Many investments are shorter duration or self-liquidating, with clearer paths to repayment. These features are especially valuable as liquidity is reassessed and macro uncertainty remains high.

Structure over beta: from tactical to strategic allocation

The current environment underscores the importance of prioritizing structure over beta. While higher rates support income, they heighten downside risks. Strategies dependent on refinancing conditions or multiple expansion are increasingly vulnerable. By contrast, investments with strong collateral, predictable contractual cash flows, and shorter durations with early capital return are better equipped to withstand a wide range of macro outcomes.

These attributes are more consistently found in less crowded, structurally inefficient markets, particularly across Asia-Pacific. Exposure to the region is evolving from a tactical or opportunistic position to a more strategic portfolio role. The focus is on diversification, access to less competitive deal flow, and downside protection—not taking on additional risk, but finding markets where risk is better priced and rewarded.

Conclusion

Private credit is entering a period of differentiation, not decline. The next phase will be defined by greater dispersion of returns, increased focus on liquidity and structural protections, and a return to fundamental underwriting. Capital will migrate toward markets where competition is lower, structures stronger, and return drivers less reliant on optimistic growth assumptions. Asia-Pacific meets these criteria. For investors positioning for the next cycle, it is no longer a peripheral allocation, it is central to the private credit opportunity set.

By Jamie Tadelis, Chief Product & Investor Officer

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George Efstathopoulos

“In recent years, many investors have asked whether China remains investible. Between the property downturn, regulatory tightening, and geopolitical frictions, global capital turned away from Chinese equities in favour of perceived safety elsewhere. Yet markets have a way of challenging consensus, and China’s market performance this year suggests a quiet but meaningful shift. 

“China has proven more resilient than many had expected. Earnings stabilised, corporate reforms accelerated, and confidence is slowly returning. Flows typically follow stock market performance and earnings, and China is now delivering both. For investors, diversification remains the cornerstone of portfolio construction and China now offers not only diversification but also innovation. As such, it is regaining its status as an indispensable component within Asian and emerging-market allocations, precisely at a time when foreign investors remain structurally underweight Chinese equities.

“Perhaps the biggest surprise this year has been China’s resilience. Growth has held up in the face of tariffs and soft global demand, and the government has managed to navigate its relationship with the US more deftly than most expected. In many respects, China has achieved more in negotiations while offering less, shifting dynamics and bargaining power.” 

Rebalancing China’s two engines

“China’s economic model has long relied on two engines: exports and domestic consumption. The former has been operating in overdrive, while the latter continues to lag. To sustain growth, China is in the process of rebalancing towards domestic demand. The signals from the Fourth Plenum suggest policymakers are fully aware of this need. Fiscal policy remains the key. China holds the fiscal keys to help fight its own deflationary forces, rebalance its economy and create more sustainable growth domestically – and by doing so, boosting status as a key trading partner to the rest of the world, which would in turn also elevate the Chinese Yuan’s role in the world stage. 

“For markets, the next phase of the China rally may hinge on inflation dynamics. The return of moderate inflation would signal not just cyclical normalisation but structural health. For years, investors have drawn parallels with Japan’s deflationary episode, fearing a similar “lost decade”. Yet recent data points have been more encouraging. Core inflation has been rising since May, while service-sector inflation – from recreation to healthcare and transport – is broadening. Sequential producer price inflation has improved for three consecutive months, reflecting early success in addressing overcapacity and anti-involution can help earnings broaden beyond tech sector. A convincing exit from deflationary concerns could be the catalyst for further re-rating.”

Looking ahead

“As the narrative on China continues to shift, foreign flows are likely to follow. Yet perhaps the more powerful force lies within China itself. With one of the highest household savings rates globally, China holds a vast pool of untapped domestic capital. Historically, property was the preferred savings channel, but with the property market undergoing structural adjustment, equities may increasingly become a credible alternative.

“Meanwhile, government policies aimed at strengthening the social safety net could gradually reduce the need for precautionary savings. If households begin to deploy even a fraction of their deposits into the equity market, the implications for valuations could be profound. Opportunities span both onshore and offshore markets. Offshore equities, with their heavier weighting in technology and AI, are benefiting from the innovation theme and China’s relative strength in energy infrastructure – a key advantage in an electrifying global economy, while valuations remain much lower than global peers. Onshore markets, which are more exposed to domestic consumption, could be the main beneficiaries if fiscal stimulus surprises to the upside. Mid-caps, in particular, offer high sensitivity to domestic demand recovery. While anti-involution could drive corporate margins and profitability higher, benefiting sectors such as EVs, an industry China has come to dominate worldwide.

“Looking into 2026, the foundations are in place for a sustained rally. China’s macro and corporate resilience, coupled with the gradual return of inflation and a more supportive policy stance, suggest further upside potential. The combination of improving fundamentals, policy pragmatism, and renewed investor confidence marks a distinct departure from the cycle of hope-driven rallies of recent years. China’s equity market is in a bull phase that foreign investors have yet to fully appreciate. For those willing to look beyond the lingering skepticism, the risk-reward balance has shifted decisively. In my view, dips remain opportunities to buy, not to sell. China has turned the corner – not through hope, but through resilience, innovation, and policy conviction.”

By George Efstathopoulos, portfolio manager

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Andrew Swan

The next five-year plan from the Chinese government is likely to move the country from deflation to reflation, according to portfolio manager of Man GLG Asia Opportunities Fund, Andrew Swan. He says the focus will be on domestic demand to lift consumption levels in the economy.

“The Chinese government has described its next five-year plan as aiming to vigorously improve consumption as a share of GDP. This reflects the government’s desire to achieve balanced growth by providing greater economic incentives to increase household disposable income and boost consumer confidence to spend more in the local economy.

“If all the goals set out in the five year plan are delivered, it will positively impact investment markets as increased consumption will drive up corporate profits of Chinese companies,” says Mr Swan.

As with China’s previous five year plan there will be winners and losers, he says.

“The previous plan resulted in a fairly narrow set of winners, but it may be different this time around.

“The structural reforms that will encourage higher consumption will in turn drive prices higher. Higher prices have a positive impact on GDP, which bodes well for corporate profitability and for the broader equity market,” says Mr Swan.

In terms of trade negotiations with the US, Mr Swan says that China is in a stronger position than many assumed, as highlighted by with the recent trade tensions around rare earths.

“In recent weeks there has been a back down from the US on some of its trade threats. While this is good news, there still isn’t a permanent long-term solution that’s been agreed, instead, we have seen a delay in addressing the trade issues at hand.

“As it stands, while the tariffs are still there, they are certainly lower than what was anticipated. Importantly, they are in line with some of the tariffs that have been placed on other countries in the region.

“This is not a bad outcome for China compared to what the market feared earlier in the year,” says Mr Swan.

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Amit Goel

The Indian equity market came under pressure in 2025 amidst a domestic growth slowdown and adverse US policy actions. Both consumption and capital investment showed signs of fatigue after two to three years of strong expansion, leading to weaker corporate earnings growth.

The US imposed 50% tariffs on Indian imports, including a 25% penalty on Russian oil purchases, and introduced a USD 100,000 fee on new H-1B visa applications. The latter raised concerns as Indians account for nearly 70% of visa holders. The US remains a key trading partner, accounting for 20% of India’s goods exports and 50% of its services exports. Tariffs have particularly affected labour-intensive sectors such as textiles, gems and jewellery. While services exports remain exempt, rumours of a potential outsourcing tax persist.

Our corporate interactions indicate that additional H-1B visa costs are manageable for Indian IT services firms, which continue to reduce dependence on H-1Bs through increased local hiring in the US and greater nearshore/offshore recruitment. However, an outsourcing tax would pose a more material challenge if implemented. Encouragingly, recent reports suggest that New Delhi is moving closer to securing a tariff resolution with Washington.

India’s economy remains largely domestic-driven, with private consumption accounting for about 60% of GDP and gross fixed capital formation contributing 30%. In contrast, merchandise and services exports represent roughly 12% and 9.5% of GDP, respectively. This domestic orientation – supported by favourable demographics and rising consumption – underpins India’s position as one of the fastest-growing major economies globally.

The government appears to have recognised both internal and external challenges and has responded with structural reforms and fiscal stimulus. On 21 November, it implemented the four labour codes consolidating 29 existing laws. These reforms are expected to simplify compliance, address industrial disputes, and boost manufacturing competitiveness. For employees, they expand social security coverage, broaden enforcement of minimum wages, and promote gender pay parity.

Earlier in the year, the government increased the income threshold for tax exemption to enhance middle-class disposable income. In September, it simplified the Goods and Services Tax (GST) structure and lowered rates, making key consumer goods – including automobiles and durables -more affordable. In October, it approved the 8th Pay Commission, which will raise government employee salaries from 2026.

On the monetary front, the sustained decline in inflation has enabled the Reserve Bank of India to cut policy rates by 100 basis points over the past year and reduce the cash reserve ratio to improve credit availability. These measures should further support domestic demand and investment.

Overall, recent US policy actions have created short-term headwinds for India’s external sector, particularly if an outsourcing tax is implemented. While we await a trade deal with the US, India’s domestic demand-led growth model remains intact. The government’s policy measures are aimed towards a recovery in consumption and promoting investments. Indian equities continue to be supported by strong structural fundamentals and high returns on equity and periods of cyclical weakness may therefore offer attractive opportunities for systematic accumulation and medium-term alpha generation.

By Amit Goel, portfolio manager

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Overall, China’s economy must deal with excess economic capacity by stimulating domestic private activity or set growth targets at lower levels that strictly contain production.

China’s ability to sustain fairly robust economic growth despite a massive property sector downturn is now facing new tests as global trade barriers rise, and domestic demand shows fresh signs of weakness.

Looking ahead, China’s excess industrial capacity and mounting inventories are likely to intensify deflationary pressures – forcing policymakers either to further stimulate domestic consumption or to tolerate slower growth. The readout from China’s recent fourth plenum acknowledges this economic reality. However, how quickly China can shift its growth model inward remains a key question.

The post China’s growth engine faces fresh challenges appeared first on AdviserVoice.

Stuart Rumble

Consumer behaviour across developed markets in Asia, like mainland China, Hong Kong, Singapore and Taiwan, is undergoing a notable transformation, shaped in part by persistent economic uncertainty and a challenging macro environment. In many markets across the region, subdued growth, lingering market volatility, and concerns over employment stability have led to a discernible shift in spending patterns. Consumers are not only tightening their budgets – they are also seeking deeper emotional connections with the products and experiences they choose.

This behavioural pivot is evident across sectors. In food and beverage, for instance, the closure of high-profile restaurants and luxury dining venues reflects a retreat from high-ticket discretionary spending. Yet, the rise of supermarket dining and casual, affordable formats signals a reallocation of consumption rather than a wholesale contraction.

Consumers are prioritising value, but increasingly, they are also drawn to purchases that offer emotional resonance, cultural relevance, or a sense of identity. For example, many are gaining pleasure simply from opening a blind box from Pop Mart. For investors, these shifts present a complex mix of opportunity and risk. Brands that successfully tap into emotional value have demonstrated strong consumer engagement and, in many cases, robust equity performance. These companies have benefited from both top-line momentum and investor enthusiasm. However, sustaining this success requires continuous innovation, particularly in intellectual property and product development.

Valuations also remain a critical consideration. Several consumer-facing stocks are trading at elevated multiples, prompting questions about the durability of earnings growth and the potential for mean reversion. Investors must distinguish between transient trends and structural shifts. While the blind box phenomenon may fade, broader movements – such as the rise in health-conscious lifestyles and experience-led consumption – appear more enduring and merit closer attention.

Sectors such as sportswear and cosmetics offer more resilient long-term prospects. These industries benefit from favourable demographics, increasing urbanisation, and digital engagement. Local players, in particular, are gaining ground by leveraging social media and influencer-led marketing to accelerate product cycles and respond swiftly to consumer feedback, often outpacing global incumbents in agility and cultural alignment.

Digital channels are also reshaping the consumer-investor dynamic. Live-streaming commerce, social selling, and viral product launches are compressing the time between product conception and market adoption. Companies that can harness this velocity – especially those with deep local insight – are well-positioned to capture market share and investor interest. The success of Chinese electric vehicle brands in markets like Singapore underscores the disruptive potential of agile, consumer-centric business models.

However, the competitive intensity in markets such as China cannot be overstated. Success breeds imitation, and only firms with robust fundamentals, adaptive strategies, and clear differentiation will endure. Investors must pay close attention to management quality, innovation pipelines, and the ability to pivot in response to evolving consumer sentiment.

The changing consumer landscape in Asia reflects both economic caution and a search for emotional fulfilment. For investors, the challenge lies in identifying which behavioural shifts are cyclical and which are structural. Those who can navigate this complexity – by focusing on innovation, cultural relevance, and valuation discipline – will be best placed to capture the next wave of growth in the region’s dynamic consumer markets.

By Stuart Rumble, head of investment directing, Asia Pacific

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Peiqian Liu

As global trade dynamics continue to evolve, the impact of US tariffs on Asia’s economies has become increasingly significant. With shifting supply chains, emerging trade alliances, and growing pressure on regional markets, it is a critical moment to examine how Asia is adapting to these changes.

Peiqian Liu, Asia economist at Fidelity International comments: “Since Liberation Day, tariff-related uncertainties have posed significant challenges to the global economic outlook. While it appears that we may be moving beyond the period of peak uncertainty – following several intensive rounds of bilateral negotiations resulting in trade truces and preliminary agreements – the impact of tariffs on global supply chains is likely to persist longer than anticipated, with effects expected to emerge over the coming quarters and years.

In the immediate to short term, corporates and countries have adjusted their trade practices in response to changing tariff rates globally. At the corporate level, companies sought methods to minimise additional tariff costs, such as frontloading before new tariffs were implemented. These practices were observed at both broad and sector-specific levels.

US imports data indicate that frontloading has been more common among Asian exporters, though some countries in Europe and North America have also increased exports in areas such as the automotive and pharmaceutical sectors. At the country level, certain economies are utilising free trade agreements and exemptions to minimise additional tariffs; for instance, Canada has exported more products under the USMCA agreement to benefit from lower or zero tariffs. As a result, the actual tariff implemented is only increasing gradually to catch up with the targeted tariff rates, with current estimates placing them at around 15 to 16 per cent.”

China’s rising competitiveness

“In addition to the impact of tariffs, a quiet evolution that is reshaping regional trade dynamics is the rise of cost-effective and competitive Chinese exports throughout the supply chain, spanning products from Christmas decorations and footwear to electric vehicles and shipbuilding. This deflationary trend continues to exert downward pressure on Asian supply chains, even in the wake of the revised tariff framework.

Contrary to the notion that as labour costs rise, countries will naturally move up the supply chain and shift most of its production to countries with lower cost, China remains competitive even in some low-cost manufacturing due to its rapid adoption of automation and industrial upgrading. In high-end manufacturing, China continues to make breakthroughs by increasing R&D investment and providing ongoing policy support for science, technology, and innovation, making it one of the most advanced economies in many areas of emerging and cutting-edge technologies. With a comprehensive and efficient supply chain, China has created a manufacturing ecosystem that many countries and corporates will lean on globally over the medium term.”

Asia’s trade outlook remains promising

“Despite ongoing uncertainties and external challenges, there remain valid reasons to expect resilience in Asia’s trade outlook. It is important to acknowledge that as frontloading subsides and the payback period commences, some downside risks may emerge for external demand within the cyclical framework. However, the region is actively adapting to the evolving environment of economic fragmentation.

In recent years, China has also expanded its reach into non-US markets, enhancing the stability and independence of its export sector from US economic fluctuations. We anticipate that more markets will pursue diversification strategies and build stronger ties with multiple major economies by promoting trade relations and engaging in free trade agreements across various economic blocs.

And while tariff rates may continue to fluctuate, some early signs show that Asian exporters with a competitive advantage in producing AI-related goods have experienced less impact than anticipated. Taiwan and South Korea have gained from increased AI demand, even with rising tariff challenges. These markets have focused on specialised exports and diversified their export markets to benefit from the global semiconductor cycle. We may see more economies in Asia adopting similar approaches, moving away from low-cost manufacturing towards high-tech exports to remain competitive as they face the dual headwinds of higher tariffs and stiffer competition in the global supply chain.

In addition to technology-related exports, we believe that tariff differentials with China will continue to provide certain regional advantages in exports, benefiting markets such as Singapore and Malaysia. While the benefits of transshipment may diminish over time, nations with higher domestic value-added production can still capitalise on these tariff differentials to export to the United States with a term of trade advantage.

The fact is, the implementation of US tariffs has acted as an external shock to global trade. We are now entering a new phase characterised by increased fragmentation in international trade and supply chains; however, this does not necessarily imply greater vulnerability. Both corporations and countries have demonstrated adaptability, reshaping trade flows in response to these changes. While the effects of tariff-induced disruptions are likely to persist, we remain cautiously optimistic and expect the region to demonstrate ongoing resilience.”

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Simon Glazier

Key points

• Survey of over 6,500 investors shows rising caution amidst volatility, with 53 per cent of Australian investors having increased their investments and cash savings
• The majority of investors are holding their nerve in instances when markets swing more than 10 per cent
• Despite retirement and financial independence topping investor priorities, most have investment horizons of less than three years

Volatility is set to be the defining feature of markets in 2025. Even as headline trade frictions have eased with recent US agreements, uncertainty persists around sector-specific tariffs, shifting implementation timelines, and the evolving US–China relationship. Added to this are diverging central bank policies, stubborn inflation in some economies, and uneven growth across Asia. Together, these forces point to a year where sharp swings, rather than steady trends, are shaping investment outcomes, creating a backdrop that is testing investors’ ability to remain focused on the long term.

Fidelity International’s Asia Pacific Investor Study sought the views of more than 6,500 individual investors across mainland China, Hong Kong, Taiwan, Singapore, Japan, and Australia, and reveals how investors are responding to turbulent market conditions and positioning themselves to achieve their financial goals. While most recognise the importance of staying invested for the long term, many are adopting a more cautious stance, underscoring the need for resilient strategies that can withstand market fluctuations and support long-term outcomes.

Investor reactions in volatile markets

Amidst 2025’s uncertain environment, 57 per cent of Australian investors have increased their cash savings, 53 per cent have increased their investments, and 47 per cent have increased contributions to their superannuation.

When asked where they would allocate additional funds from a hypothetical windfall equivalent to one month’s salary, Australian investors prefer to add to their investments (32 per cent) over allocating to cash (29 per cent) or paying off debts (19 per cent). This compares to the average APAC investor, who are more inclined to allocate to cash (35 per cent) over investments (31 per cent).

If the windfall was equivalent to a year’s salary, Australian investors are willing to invest slightly more in investments (35 per cent) and less in cash (27 per cent), compared to investors in the broader APAC region where the split is equally across cash (33 per cent) and investments (33 per cent).

The study also examined how investors respond to sharp market swings. When asked how they would respond to a 10 per cent drop in one day in one of their investments, 57 per cent of Australian investors said they would keep their investments unchanged. This was slightly below the general consensus across the APAC region (62 per cent).

Similarly, when faced with a 10 per cent increase in one day, 54 per cent of Australian investors would hold their position. Compared to the APAC region, Australian investors are more inclined to buy more units when markets rise (21 per cent versus 12 per cent), and least likely to sell (21 per cent versus 31 per cent). This indicates a regional difference in risk tolerance.

Chart 1: Reaction to a 10 per cent increase in value of an investment product

Source: Fidelity International, APAC Investor Study 2025

Simon Glazier, managing director of Fidelity Australia, said “As we continue to live through a highly volatile environment, our investor study seeks to understand how volatility is impacting investor behaviour. The results show Australian investors are more likely to stay invested, and invest more, during periods of volatility in the market compared to the rest of the APAC region. It is during times of uncertainty and volatility that investors can take advantage of opportunities in the market, which would otherwise be out of reach.”

“The data from the survey also indicates Australians are more likely to invest windfalls as opposed to keeping excess capital in cash. What this suggests is that across the APAC region, Australian investors understand the importance of investing and allocating excess cash into assets that can get them closer to achieving their desired return outcome.”

Long-term ambitions, short-term horizons

When focusing on a longer-term timeframe, investors in Australia’s top goals are saving for retirement (52% per cent) and achieving financial independence (50 per cent). Yet only 53 per cent are confident in achieving their financial goals.

Confidence varies across the region, with investors in Australia being the more assured on achieving their top financial goals at 79%, followed by mainland China (69%) and Singapore (58 per cent). This is compared to lower levels in Hong Kong (46%), Taiwan (40%), and Japan (38%).

Chart 2: Confidence on achieving financial goals

Source: Fidelity International, APAC Investor Study 2025

Despite the long-term nature of these goals, a majority of investors in the APAC region (55 per cent) say their primary investment horizon is less than three years. Fewer than one-third (31 per cent) are investing with a time frame beyond five years. Investors in Australia investors don’t skew from this trend with the majority (59 per cent) having an investment horizon of less than three years, and 27 per cent more than five years. They also expect an annual return of 10.1 per cent for long term investments compared with the average APAC investor expecting an 8.1 per cent annual return. This is the highest expectation in the region. 

Simon Glazier comments: “The study indicates that investors in Australia demonstrate the highest confidence levels in the APAC region and maintain a strong sense of optimism regarding their long-term prospects and ability to achieve financial objectives. Although there has been an increased allocation to cash savings this year, investors here continue to expect annual returns of 10.1 percent – the region’s highest projection. However, holding excess cash may not provide the anticipated results. It is important for investors to recognise that remaining invested throughout market cycles, rather than adopting a wait-and-see approach, is essential to realising long-term goals.

“With clear expectations for further market volatility ahead, having diversified portfolios and maintaining disciplined saving and investing will be key. At Fidelity International, our global investment expertise and deep research capabilities enable us to identify companies with strong growth potential, resilience across market cycles, and consistent income generation. This allows us to support investors in meeting a wide range of financial objectives with confidence.”

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Peiqian Liu

Peiqian Liu, Asia economist, Fidelity International, comments: “Recent debates have centred on the sustainability of China’s recent equity rally, with some drawing parallels with the events of 2015. In our view, however, the current surge is not driven by a single catalyst but is the product of multiple forces converging – policy adjustments, liquidity improvements, a thaw in US-China relations, and strengthening economic fundamentals all play pivotal roles.”

In particular, the pivot in macro policy since September 2024 stands out. The People’s Bank of China (PBoC) has prioritised measures to bolster equity markets, including new structural monetary policy tools such as swap facility and relending to encourage long term investment into the stock markets. Notably, institutional investors have led the charge in A-share inflows during the first half of the year, which is a marked contrast to the retail-driven rally of 2015.

While the economy is still in the process of stabilising, key developments have fostered renewed confidence. The “DeepSeek moment” in early 2025, the emergence of new consumption patterns, combined with robust demand for Chinese exports and AI related investments, have restored investors’ confidence about China’s growth prospects. The extension of the US-China trade truce until early November offers additional breathing room, steadying immediate trade outlooks and supporting the credibility of this year’s growth targets. In response, recent economists’ surveys saw consensus GDP forecasts for 2025 have been raised close to the government’s target of 5.0%.

Domestic sentiment has also been buoyed by China’s resilience against tariff pressures. Onshore investors see the country gaining an edge in critical supply chain areas, with Chinese companies largely weathering external challenges. Meanwhile, the latest anti-involution campaign – echoing 2016’s capacity cuts but with distinct differences – has contributed to reflationary expectations. A mild rebound in credit impulse hints at possible improvements in Producer Price Index (PPI) and corporate profitability, though caution remains regarding the broader impacts of sectoral adjustments.

Looking ahead, two key channels will shape the real economy’s response. First, a revival in IPO momentum could reinforce a positive financing loop and enhance the transmission mechanism from financial market into supporting the real economy. Second, retail investor behaviour warrants close watch: while enthusiasm hasn’t matched that of a decade ago, momentum is building, with margin financing rising and household deposits potentially declining as more funds enter equities. This could foster a wealth effect, restoring household confidence and supporting discretionary spending. However, risks of crowding out property investment persist.

As China’s October National Day Holiday approaches, tourism spending and weekly property transaction data will provide critical early signals. Despite the market’s recent strength, H2 presents ongoing challenges, particularly as subsidies from the durable goods trade-in programme are scaled back, payback from tariff frontloading as well as property sector weakness. Investors and policymakers alike will need to remain alert to shifting dynamics to ensure continued stability and growth.

When it comes to the policy outlook, fiscal easing may still be the main policy lever. We see some room for more property sector easing if there are no signs of firmer stabilisation, as well as pivoting into welfare-related spending and expansion of the subsidy programmes. However, this may require additional fiscal resources to be used. The PBoC may face policy dilemmas in the coming quarters as it will need to balance between supporting the real economy and preventing any speculations or overheating in the stock market.”

By Peiqian Liu, Asia economist

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