'Cheapness is off the charts': investors revert to pre-war Asia betting strategy

Global capital is returning to the idea of large-scale investments in Asia due to the unprecedented cheapness of local assets compared to US stocks. What is happening has divided the continent into two camps: the high-tech North is setting records on the back of the AI boom, while the developing South is suffering from expensive oil. Standard Chartered cited the attractiveness of the markets of China, Taiwan and India in its global outlook for May 2026.

"The thesis of Asian markets outperforming US markets is looking increasingly convincing," said Charu Chanana, chief investment strategist at Saxo Markets. - While there is no firm confidence in the macroeconomic outlook, capital still needs to find solid uses. Right now it is artificial intelligence, and Asia remains the linchpin of this investment."

"North Asian markets look preferable," says Fidelity International portfolio manager George Efstathopoulos. - The U.S. economy is still resilient, but capital flows are reallocating: instead of share buybacks, funds are increasingly being channeled into [capital] investments, much of which are fueling Asian supply chains - for example, the securities of Chinese mid-cap companies and Korean memory chip makers."

Confidence in the faster growth of Asian markets compared to Wall Street is underpinned by a widening gap in growth forecasts. According to Bloomberg, analysts are forecasting a sharp increase in earnings per share (EPS) in Asia, with a 212% increase for South Korea's Kospi index and a 58% increase for Taiwan's Taiex over the next year. The expected EPS growth for the U.S. S&P 500 index is only 24%. As a result, Asian stocks look cheap: for every dollar of future profits, investors pay $14 in Asia, while in the U.S. - $21.

Thus, the valuation ratios of South Korean stocks have fallen much more than in the U.S., if we correlate the value of securities with the expected growth rate of business, notes Viz Nayar, director of investments at Eastspring Investments. "If the profit forecasts of Korean companies are correct, the market by this indicator (PEG, the ratio of the P/E multiple to the rate of profit growth. - Oninvest) looks so cheap that it is already beyond the usual scale," the expert emphasizes.

The war in Iran has divided Asian markets into two opposite poles: investors are ignoring the conflict in the Middle East for the sake of investing in future technologies, while penalizing the economies that are most vulnerable to rising energy prices, Bloomberg states. In South and Southeast Asia, rising oil prices are causing quotations to fall in India, Indonesia and the Philippines. At the same time, in the north of the region, enthusiasm around artificial intelligence and chip makers is pushing stock indices in South Korea and Taiwan to new records, the agency notes.

The lack of progress in US-Iran negotiations over control of the Strait of Hormuz is only widening the gap between Asia's North and South. Gary Tan, portfolio manager at Allspring Global Investments, believes this dynamic will continue as long as oil prices remain high. According to him, Asia has found itself in the midst of a collision of two market ideas: faith in the long-term trend towards breakthrough technologies and pessimism due to the short-term stress caused by the war.

Standard Chartered has maintained its global outlook for Ma 2026 for Asian equities excluding Japan with an Overweight rating (in line with its Buy recommendation). As part of its regional strategy, the investment bank favors the markets of China, Taiwan and India. Indian shares, although weakly linked to the technology boom, are attractive due to the country's high economic growth rates and the fact that their value has already taken into account the risks of disruptions in energy supply, the bank believes.

With regard to the Japanese stock market, Standard Chartered recommends adhering to a neutral position (Core Allocation), predicting that after the rapid growth of shares at the beginning of the year, their dynamics in the next 6-12 months will be in line with global averages. The key support factor is Tokyo's plans to stimulate the economy, which can offset the negative effect of high prices for imported energy, to which Japan is extremely sensitive.

This article was AI-translated and verified by a human editor