Asian emerging markets set to continue strong year
Investment trust managers point to global tech leaders and pro-growth policies.
Asian emerging markets have been performing strongly in 2025 after several years of relatively lacklustre performance. That is despite the introduction of punitive tariffs by President Trump, which many pundits thought would stymie the region’s stock markets.
The region’s recovery has been notable, with the average Asia Pacific investment trust delivering a return of 16% this year in comparison to 12% for the average investment trust.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC)
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Many investors and analysts have been surprised by Asia’s strong performance after many of the key economies were slapped with some of the highest tariffs on Liberation Day in April. But the region’s recovery has been notable, with the average Asia Pacific investment trust delivering a return of 16% this year in comparison to 12% for the average investment trust. The average Asia Pacific Equity Income trust has had an even stronger year delivering an 19% return and a yield over 5%.”
The Association of Investment Companies (AIC) has gathered comments from investment trust managers on Asian equities’ unexpectedly strong year.
Abbas Barkhordar, Co-Manager of Schroder AsiaPacific Fund, said: “Some of the world’s most important companies in AI are in Asia. Asian semiconductor manufacturers, particularly the large tech companies in Taiwan and Korea, are the world leaders when it comes to producing cutting-edge processors and high-bandwidth memory chips, without which generative AI would not be possible.
“In addition, some of the leading internet companies in Asia are leading a parallel wave of investment in advanced data centres and generative AI models which could rival the efforts of leading US tech companies. While the long-term sustainability of this huge investment in AI data centres and model development is reliant on eventual monetisation, and therefore currently uncertain, there is no sign of a slowdown in the short term, with tech companies more fearful of underinvesting and falling behind their peers than of wasting capital.”
Qian Zhang, Investment Specialist at Baillie Gifford, which manages Pacific Horizon Investment Trust, said: “Given solid fundamentals, the question for the past few years has been why hasn’t Asia performed better? There have been two major headwinds and both have been easing in the last six to 12 months. First, China’s domestic policies have pivoted decisively towards supporting growth and the private sector after three years of extreme market pessimism. Second, the US dollar has fallen by about 10% on a trade-weighted basis in 2025; a weaker dollar has historically turbocharged returns in Asian markets.
“Saying all this, our biggest reason for enthusiasm lies in the quality of the companies themselves. Asian companies are world-class in batteries, semiconductors, social media, platforms, gaming… the list goes on.”
Fiona Yang, Manager of Invesco Asia Dragon Trust, said: “Low starting valuations have helped Asian performance, with both China and Korea’s stock markets recovering from overly discounted levels as sentiment has shifted. Concerns surrounding China have eased, helped by clearer policy support for the economy and property market in particular. In Korea, domestic political headwinds have cleared after presidential elections resulted in victory for the Democratic Party.
“Looking ahead, US equity markets continue to trade at a rich premium to Asian markets, with scope for this to narrow, and the US dollar has already weakened markedly versus most Asian currencies, which offers ongoing support.”
Pauline Ng, Manager of JPMorgan Asia Growth and Income, said: “Resilient domestic demand, targeted policy support, and a rebound in technology and manufacturing exports have all helped.
“Several Asian central banks have already begun easing policy to support activity, and Chinese authorities are stepping up targeted stimulus amid early signs of emerging recovery. Technology is also playing an increasingly important role, with the launch of DeepSeek underscoring the pace of innovation in artificial intelligence across Asia. The broader shift towards digitalisation in the region is also likely to further boost productivity and drive further economic gains in the years ahead. At the corporate level, rising dividends and share buybacks are contributing to stronger returns.”
Isaac Thong, Lead Manager of Aberdeen Asian Income Fund, said: “Asia’s performance has been led by North Asian markets, particularly Taiwan, South Korea and China, as well as Singapore. In Taiwan, semiconductor leaders continue to deliver robust earnings growth, fuelled by global demand for AI.
“In South Korea and China, valuation re-ratings have been a key driver, supported by initiatives such as Korea’s ‘value-up’ programme. Looking ahead, sustainability will depend on continued earnings delivery into 2026. We remain confident in sectors such as technology hardware, real estate, financials and Chinese internet platforms, where policy support and strong cash generation underpin long-term growth potential.”
We have a large allocation to Vietnam. We believe it has all the ingredients to become one of Asia’s growth leaders and merits a long-term allocation. While tariffs grab headlines, it is the developments within Vietnam – from its structural reforms to a shifting consumer landscape – that command our attention.
Qian Zhang, Investment Specialist at Baillie Gifford, which manages Pacific Horizon Investment Trust
Which countries and markets do you favour – and which are unfairly overlooked?
Qian Zhang, Investment Specialist at Baillie Gifford, which manages Pacific Horizon Investment Trust, said: “By market composition, China and India are the two biggest markets in the universe, and both offer exciting opportunities. We have a moderate overweight in China versus an underweight in India.
“In China, the opportunity was compelling given that the government has shifted to a clear ‘pro-growth’ policy stance since last September. The innovation appeared to gain momentum with the emergence of DeepSeek, service-based consumer sentiment was recovering strongly, and valuation was attractive. India, on the other hand, also offers good opportunities from a company fundamentals perspective. Our Taiwan and Korea allocations mostly focus on the competitive suppliers in the semiconductor system – beyond chip producers, there are also interesting investment opportunities in areas such as testing and laser equipment makers, and data centre switch manufacturers.
“And we have a large allocation to Vietnam. We believe it has all the ingredients to become one of Asia’s growth leaders and merits a long-term allocation. While tariffs grab headlines, it is the developments within Vietnam – from its structural reforms to a shifting consumer landscape – that command our attention. A bold pro-growth policy shift under new leadership is reigniting domestic economic momentum. A 20% tariff by the US is unlikely to derail Vietnam’s trajectory toward becoming a strategic global production base.”
Isaac Thong, Lead Manager of Aberdeen Asian Income Fund, said: “We see compelling opportunities across Southeast Asia, particularly in Indonesia and Thailand. These markets offer attractive valuations and healthy dividend yields. While political transitions have created some short-term caution, the long-term structural drivers remain intact: favourable demographics, rapid urbanisation and rising consumption.
“This environment presents a chance for investors to access high-quality businesses and benefit from the region’s deepening dividend base. Banks in these countries offer direct exposure to these enduring growth trends.”
Abbas Barkhordar, Co-Manager of Schroder AsiaPacific Fund, said: “Southeast Asia tends to be overlooked by investors in the region, and many markets there are trading at historically attractive valuations, particularly the smaller markets such as the Philippines. A lack of ‘new economy’ stocks there tends to make it hard to attract investor interest, though there are a large number of good quality, well run businesses to be found for investors able to take a longer time horizon and go a little further down the market cap spectrum. Vietnam is also often overlooked given its status as a frontier market (as defined by MSCI) – though it is one of the most successful ASEAN economies in terms of attractive foreign investment and building a modern manufacturing base for exports.”
Pauline Ng, Manager of JPMorgan Asia Growth and Income, said: “While markets like India and China often dominate headlines, several other Asian countries offer compelling opportunities that are underappreciated by investors, with North Asia in particular deserving more attention due to its growing importance in the global AI supply chain. Taiwan and South Korea are emerging as key beneficiaries of this. Taiwan’s strengths in semiconductors and precision electronics, as seen in companies such as TSMC and Delta Electronics, position it at the core of AI infrastructure development.
“Similarly, South Korea’s expertise in components, servers and cooling systems makes it integral to the AI hardware ecosystem. As a result we expect Taiwan and South Korea to see continued demand growth in these sectors, creating compelling opportunities for investors.”
Fiona Yang, Manager of Invesco Asia Dragon Trust, said: “Indonesia is particularly attractive, in our view. This may seem counterintuitive given recent domestic political strife, but we feel that crisis valuations are not warranted and that we are past the peak of investor concerns. Markets have rebounded off their lows, but there is still the opportunity to selectively invest in undervalued but well run companies, with strong balance sheets that are paying attractive dividends.
“Recent unrest has also ratcheted up the pressure on the government to stimulate the economy, and we have already seen measures signalling continued support for consumption, with interest rates being cut in August to 5%, continuing a cycle of monetary easing.”
What are your most exciting holdings?
Qian Zhang, Investment Specialist at Baillie Gifford, which manages Pacific Horizon Investment Trust, said: “Plenty! For example, China’s largest coffee brand Luckin Coffee and Southeast Asia’s dominant e-commerce and gaming company SEA.
“Samsung Electronics and SK Hynix are two out of the three companies in the world that can make high bandwidth memory chips at scale – with all the news we hear about huge data centre investment, to power better, faster and smarter computing and referencing, HBM chips are essential.”
What are the risks to the region’s continued success?
Pauline Ng, Manager of JPMorgan Asia Growth and Income, said: “Tariff pressures, geopolitical tensions, and global trade uncertainties remain key challenges but a weakening US dollar offers important support, providing Asian economies with some resilience. In this environment, active management becomes especially valuable in helping investors to navigate these dynamics by pinpointing companies with strong growth potential, solid fundamentals, and compelling valuations.”
Isaac Thong, Lead Manager of Aberdeen Asian Income Fund, said: “A sharper-than-expected slowdown in global AI investment could impact Asia’s semiconductor leaders. Additionally, secondary tariffs from the US or EU on China and India would pose challenges to global trade. Persistently high inflation could also be a headwind for more externally exposed economies.”
Abbas Barkhordar, Co-Manager of Schroder AsiaPacific Fund, said: “Given the strong rally in technology stocks, a downturn in the AI investment cycle would likely see sharp share price corrections in stocks most linked to that theme, particularly in tech-heavy Taiwan and Korea.
“Another long-standing risk is a worsening of the geopolitical situation, particularly in terms of US-China relations. Similarly, although the concern over higher US tariffs has reduced significantly since early April, there are still many unknowns around the new administration’s eventual trade policy – a slowdown in exports would be a headwind for regional growth and company earnings.”
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Notes to editors
- The Association of Investment Companies (AIC) represents a broad range of investment trusts and VCTs, collectively known as investment companies. The AIC’s vision is for closed-ended investment companies to be understood and considered by every investor. The AIC has 294 members and the industry has total assets of approximately £267 billion.
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- Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.
