2026 Asia Equities ex-Japan Outlook: Positive catalysts drive continued momentum

23 December 2025

June Chua, Head of Asia Equities

Asia equities ex-Japan delivered strong performance in 2025. Looking ahead to 2026, June Chua, Head of Asia Equities, outlines in this investment note why she believes the outlook for the asset class remains constructive, underpinned by numerous positive catalysts: a softer US dollar, the US Federal Reserve’s rate-cut trajectory, supportive earnings and valuations, and differentiated growth drivers across geographies.

Summary:

Asia equities have delivered strong year-to-date returns amid challenges. Earnings and valuations in Asian geographies remain supportive, with an overall positive outlook.
We reiterate our constructive view of Greater China equity markets heading into 2026, supported by attractive valuations and resilient fund flows.
We continue to stay true to our 5D structural investment themes – Digitization, Demographics, Deglobalization, Decarbonization, and Deficit Reduction – that capture the multi-dimensional nature of India’s economic transformation.
Asia equities’ upward trajectory has been driven by Korea’s strong performance in 2025; we are constructive on the market for 2026. We currently maintain a high level of conviction in Korea’s broader industrial sector.
Equities in most ASEAN markets have underperformed their North Asian peers year-to-date. Despite the challenging environment, we believe coordinated efforts by governments, central banks and corporates are underway to navigate these headwinds.

2025: market recap

Despite trade-related volatility in the first half of 2025, Asia equities have delivered strong year-to-date (YTD) returns, rising by 29.5% (Chart 1)¹. The performance was driven by a weaker US dollar, easing trade tensions, optimism around artificial intelligence (AI) and technology, and the US Federal Reserve (Fed) rate-cut path.

Chart 1: 2025 YTD MSCI Asia indices performance (USD, %)²

Markets forecasted of Fed rate cuts

Overall, there have been 10 years in which the US dollar’s performance has been negative (Chart 2). Of these 10 years, we have seen positive performance from Asia ex-Japan equities in nine of them. The global macro backdrop of lower US rates could result in a weaker US dollar, which has historically been a positive for Asian equities.

Chart 2: Asia equities market performance versus US dollar performance³

Strength in net property income growth offset

Apart from overall US dollar weakness, Asian markets' earnings and valuations remain supportive, with a positive outlook overall (Chart 3 and 4).

Chart 3: Consensus earnings per share (EPS) levels of the MSCI AC Asia Pacific ex-Japan Index (USD)⁴

Chart 4: Asia equities forward price-earnings (P/E) valuations (current vs 10-year average)⁵

DPU growth should resume in 2025 and 2026

Asian earnings estimates for 2026 were revised down for most of the year, but we witnessed an inflexion point in the fourth quarter, driven by Korea, Taiwan, and Hong Kong on the back of strength in technology.

Each Asian geography will feature different growth drivers in 2026, which we will explore.

Geographic Outlook

Greater China

From a macroeconomic perspective, we believe the Greater China economy has multiple avenues for growth, driven by the 15^th Five-Year Plan (2026-2030). We reiterate our positive view of Greater China equity markets heading into 2026, supported by attractive valuations and resilient fund flows.

With tariff noises subsiding, we believe there are more varied investment opportunities in Greater China, notably in (1) technology, (2) industrials, (3) renewable energy, (4) healthcare and (5) new/niche/experienced consumption.

For the Taiwan region, we continue to see solid emerging structural growth opportunities in (1) foundries, (2) outsourced semiconductor assembly and test (OSAT) supply chain, (3) thermal cooling solutions and (4) power supply solutions.

For more in-depth analysis, please see our 2026 Greater China Equities Outlook.

India

While delivering positive absolute returns over the past year, India has underperformed the rest of Asia due to the recent escalation in trade tensions with the US, which has raised concerns over India’s economic outlook and the subsequent impact on India’s fiscal and current accounts and its currency, the Indian rupee (INR).

When seen in isolation, if the current tariff rates continue, there are 60-100 basis points (bps) of downside risk to gross domestic product (GDP) growth, assuming a 50-80% hit to the affected export basket.

The current account deficit (CAD), previously projected at 0.5% of GDP, could widen to 1.1%-1.5% depending on the severity of export losses. Currency depreciation pressures may also emerge, although India’s robust foreign exchange (FX) reserves and credible macro framework should contain INR volatility.⁶

However, we have also seen responses from India’s policymakers, both on the fiscal and monetary sides, and these measures could largely offset the drag from the increased tariffs. These include a reform of the Goods and Services Tax system, the Union Budget’s direct tax relief, and the Reserve Bank of India’s cumulative rate cuts of 125 bps in 2025.

Overall, the potential cost of this policy stimulus is affordable given discipline in India’s fiscal balances, inflation and external accounts. If the 50% tariff is rolled back to 25% or further reset lower to a range of 15-20% (in line with other Asian economies) amid ongoing negotiations, this would be a notable positive for India’s economic and earnings growth.

We continue to stay true to our 5D structural investment themes – Digitization, Demographics, Deglobalization, Decarbonization, and Deficit Reduction – that capture the multi-dimensional nature of India’s economic transformation.

Korea

Asia ex-Japan equities have been driven by the strong performance of the Korean market in 2025.

This is on the back of AI-related plays. AI data centres have sparked new growth across the information technology (IT) and industrial sectors, and we assess the magnitude of this structural shift to be substantial.

The reason for our positive view is that the surging demand for AI data centres creates two major bottlenecks: memory and electricity. Generative AI architecture requires massive concurrent memory usage for computation.

However, expanding memory production capacity is rigid. It involves significant capital expenditure (hard assets) and long lead times: over two years to build and equip facilities, nine months for chip fabrication, and an additional three months for server integration.

The situation is similar for power. Data centre power consumption, currently at 1% of the total system, is projected to reach 10% within five years. However, power generation and transmission capacities face absolute temporal and physical constraints regarding expansion.

In addition to technological developments, a consensus is emerging in Korean society on the necessity of a new era of shareholder capitalism.

While the previous administration focused on banks and state-owned enterprises (SOEs) – sectors easily influenced by government policy – to drive governance reform and dividend increases, the current administration has begun to challenge the chaebols directly.

Measures include reforming the Commercial Code to restructure board authority and penalising companies that fail to cancel treasury shares. Ultimately, these steps will strengthen shareholder capitalism in Korea, creating significant potential for the re-rating of price-to-book (P/B) multiples that have long been discounted.

We maintain a high level of conviction in Korea’s broader industrial sector. While our exposure to power equipment has historically centred on transformers, we anticipate significant opportunities in power generation itself and are expanding our investments accordingly.

Notably, Korea is arguably the only nation with mass-production capabilities for hydrogen fuel cells and remains a strong exporter of nuclear power technology.

Our industrial thesis also encompasses the shipbuilding and defence sectors, where Korean companies hold an oligopolistic global position. With demand rising due to geopolitical tensions and conflict, we are conducting extensive deep-dive research across these hard industrial verticals.

The consumer goods sector also offers compelling opportunities.

First, the surging global demand for Korean cultural content, such as TV dramas and K-pop, is creating a direct positive spillover effect for the Korean food and cosmetics industries. Furthermore, in the automotive space, consumer preference is shifting from engine performance to passenger convenience and electronic integration—areas where Korean manufacturers have developed a competitive edge.

We project that the US market, specifically, will likely remain a vital profit driver for Korean automakers as they continue to expand market share in an environment free of competition from their Chinese Mainland peers.

ASEAN

Year-to-date, equities in most ASEAN markets have underperformed their North Asian peers.

Investment sentiment has been weighed down by a weakening earnings growth outlook, political uncertainties in Indonesia, Thailand and the Philippines, and lingering global trade policy risks.

Additionally, rising competition from Chinese mainland companies entering various ASEAN sectors has pressured the earnings of some local firms. Export-oriented corporates are holding back on capacity expansion amid uncertainty over the potential impact of President Trump’s tariffs.

Despite the challenging environment, we believe coordinated efforts by governments, central banks and corporates are underway to navigate these headwinds.

Individual ASEAN markets have different evolving drivers: Singapore’s Equity Market Development Programme (EQDP) is unlocking value among under-researched companies; Indonesia’s political noise could be behind us, with consumption expected to bounce back; Malaysia continues to benefit from data centre build-out; and Thailand remains supported by domestic and tourism recoveries. Lastly, the situation in the Philippines is like that in Indonesia, where political noise should be behind us, and consumption growth will pick up again.

Conclusion

A favourable macroeconomic backdrop, structural growth themes, and compelling valuations anchor the investment case for Asia ex-Japan equities in 2026. While regional divergences persist, such as India’s trade-related headwinds and ASEAN’s political uncertainties, opportunity sets exist, particularly in the technology, industrials, and consumer sectors.

The investment team remains highly disciplined with its stock-selection process, focusing on businesses with robust financial positions and sustainable long-term growth prospects. With improving global macroeconomic conditions and recovering domestic earnings, we believe Asia ex-Japan equities remain a critical component in a long-term investment portfolio.

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1 Bloomberg, as of 30 November, 2025.

2 Source: Bloomberg, as of 30 November, 2025. The performance of individual markets is represented by their respective MSCI indices.

3 Source: Bloomberg, as of 30 November, 2025. The Asia ex-Japan equity market return is represented by the MSCI AC Asia ex-Japan Index. US dollar performance is represented by the US dollar Index (DXY).

4 Source: FactSet, I/B/E/S, MSCI, Goldman Sachs Global Investment Research, as of 6 December, 2025.

5 Source: FactSet, I/B/E/S, MSCI, Goldman Sachs Global Investment Research, as of 6 December, 2025.

6 Source: Manulife Investment Management’s estimates, 30 November, 2025.

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Greater China equity markets registered a strong equity rally in 2025 to date, driven by technology breakthroughs, demand for localisation, go-global demand, and upward earnings growth revisions. We reiterate a positive view on Greater China equity markets going into 2026 as we believe Mainland and Taiwan are well-positioned to drive high-quality growth to the next level.

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Funds offered on this platform may invest in equity, fixed income securities, exchange-traded funds, collective investment schemes and/or other instruments, including derivatives, and each of which has its specific investment objective/ policy with its specific features and different risk profile.
Distribution of dividends, the frequency of distribution and the amount/rate of dividends are not guaranteed. Dividend of certain share/unit classes, at the fund or the investment manager’s discretion, may be paid out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share/unit of the respective share/unit classes after the distribution date.
Some funds may invest in bonds or debt securities which may be subject to credit, liquidity, counterparty and market risks.
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Some funds may invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Some funds may invest in securities of small and/or medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Some funds may invest in a single country/region and/or a particular industry sector which may be concentrated and subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Some funds may invest directly in certain China A shares via the Stock Connect, which may involve risks related to investments via the Stock Connect and Mainland China investment.
Some funds may have significant exposure to Renminbi ("RMB") bonds/equity/assets or emerging markets, which will be subject to debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with more established markets.
Some funds with significant exposure to RMB bonds/equity/assets may hold a significant portion of assets in deposits if there are not sufficient RMB instruments to invest in. This may adversely affect the funds’ return and performance.
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Some funds’ performance will be closely tied to the economic, political, regulatory, geopolitical, market, currency or other conditions in the European Economic Area and may be subject to increased liquidity, price, and foreign exchange risk.
Some funds may invest in Russia and some investments in Russian securities may be unlisted securities not dealt on a regulated market. The Russian market presents specific risks in relation to the settlement and safekeeping of securities.
Investment involves risk. Investors may expose to capital loss and should not invest solely based on the information on this website alone and should read the offering documents for details including the associated risk factors, charges and features of the funds and their share/unit classes. Past performance information is not indicative of future performance.

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Manulife Global Fund is an umbrella fund comprising a number of sub-funds investing in equity and/or fixed income securities, each of which has a different investment objective and risk profile and may involve equity market, geographical concentration, sovereign debt, liquidity, volatility, credit downgrade, interest rate, counterparty risks. Certain investors may also be subject to the risk relating to RMB hedged share class.
The relevant distributing class of the sub-funds does not guarantee distribution of dividends, the frequency of distribution and the amount/rate of dividends. Dividends may be paid out of income, realized capital gains and/or out of capital of certain sub-funds in respect of Inc share class(es). Dividends may be paid out of realized capital gains, capital and/or gross income while charging all or part of their fees and expenses to capital (i.e. payment of fees and expenses out of capital) in respect of MDIST (G), R MDIST (G) and F MDIST (G) share class(es). Dividends paid out of capital of these sub-funds amounts to a return or withdrawal of part of the amount of an investor’s original investment or from any capital gains attributable to that original investment and may result in an immediate decrease in the net asset value per share in respect of such class(es) of the sub-funds. Fixed yield share classes pay out a pre-determined annualized fixed percentage of their NAV, which can be adjusted by the Directors with at least one month’s prior notice, do not entirely reflect the actual or expected income or performance of the Fund. These distributions may exceed the actual income, leading to capital erosion, especially during negative returns or losses, and may reduce future capital growth. A positive distribution yield does not guarantee a positive return, and the absolute distributions vary with the NAV, resulting in fluctuating monthly payouts for investors.
Certain sub-funds invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Certain sub-funds invest in securities of small and medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Certain sub-funds concentrate their investments in a single country and/or a particular industry sector are subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Certain sub-funds may invest directly in certain China A shares via Stock Connect, which may involve in risk related to Investments via Stock Connect and Mainland China investment.
Investment involves risk. The sub-funds may expose their investors to capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds and their share classes.
Each sub-fund intends to use financial derivative instruments (“FDIs”) for investment, efficient portfolio management and/or hedging purposes. The use of FDIs exposes the Fund to additional risks, including counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk.
Given RMB is currently not a freely convertible currency, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB. As offshore RMB (CNH) will be used for the valuation of RMB denominated Class(es), CNH rate may be at a premium or discount to the exchange rate for onshore RMB (CNY) and there may be significant bid and offer spreads and thus the value of the RMB denominated Class(es) will be subject to fluctuation. Any devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated Class(es) of certain sub-funds.

Manulife Advanced Fund SPC

Manulife Advanced Fund SPC is an umbrella fund comprising a number of sub-funds investing primarily in equity and bond securities, each of which has a different investment objective and risk level.
The sub-funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. A sub-fund may at its discretion pay dividend out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share of the respective share classes after the distribution date.
Certain sub-funds with significant exposure to Renminbi (“RMB”) bonds/equity/assets or emerging markets, may involve debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with the world's more established markets.
A bond sub-fund may hold a significant portion of assets in deposits if there are not sufficient RMB instruments for it to invest in. This may adversely affect its return and performance.
Certain sub-funds using invest directly in debt instruments/shares via QFII regime, the Bond Connect and/or the Foreign Access Regime are subject to various requirements and restrictions under the laws of Mainland China related to investment in QFII and/or China Interbank Bond Market and custodial risks.
RMB is not freely convertible and is subject to exchange controls and restrictions.
Certain sub-funds may have significant concentrated exposures to particular industry sectors and geography's, which subjects investors to concentration and equity market risk.
Certain sub-funds may invest in equities of small- and mid-capitalization companies, which can expose investors to liquidity and volatility risks, and is subject to greater risk than is customarily associated with investments in larger capitalization companies.
Investment involves risk. The sub-funds may expose to a high risk of capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds.

Manulife Hong Kong Series

Manulife Hong Kong Series (“the Series”) is an open-ended unit trust comprising a number of funds primarily investing in equities, debt securities, exchange-traded funds and/or collective investment schemes, each of which has a different investment objective and risk level.
The funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. Dividends may be paid out of capital and/or out of gross income of certain funds in respect of Inc classes, while charging/paying all or part of certain funds’ fees and expenses to/out of capital of certain funds. This represents a return or a withdrawal of part of an investor's original investment amount or capital gain attributable to that amount. Distributions will result in an immediate decrease in the net asset value of the relevant units. Class AA (RMB) Inc Hedged Unit of certain funds is subject to higher distribution risks than other non-hedged unit classes.
Certain funds may involve equity market, emerging markets, Dim Sum bond market, concentration, volatility, liquidity, credit, credit ratings, below investment grade and unrated securities, credit rating downgrading, interest rates, valuation, sovereign debt, unlisted debt securities, political and regulatory, currency, foreign exchange, derivative and structured product, hedging, and distribution risks. Certain investors may also be subject to the risk relating to RMB hedged share class..
Certain funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
Certain fund is subject to the risks relating to investment in exchange traded funds, Strategic and Tactical Asset Rebalancing Strategy (“STARS”), small- and mid-capped companies, convertible bonds and the risks associated with securitised debt instruments and investments in loss-absorption features. Certain fund is a feeder fund that invests all or substantially all of its assets in another collective investment scheme (the “master fund”) and is therefore subject to the risks of investing in the master fund.
Certain fund will not have direct investments other than cash, cash equivalents and financial derivative instruments (such as futures, options and forwards).
Investment involves risk. The funds may expose its investors to capital loss. Investors should not make investment decisions based on this material alone but should read the offering document for details, including the risk factors, charges and features of the Fund and its unit classes.