Finding Opportunities: From AI to Governance
These conditions offer fertile ground for selective investors to search for undervalued beneficiaries of the big trends that will fuel AxJ returns in the years ahead.
These include AxJ companies that are participating in the AI technology infrastructure boom, or what we call “backdoor AI.” Companies in South Korea, China and Taiwan provide many mission-critical components that support global AI products, and typically trade at discounts to US peers.
Asian companies also play a big role in the provision of critical raw materials and defense products—market segments that are seeing rising demand amid heightened geopolitical stresses.
Corporate governance improvement is another exciting theme for equity investors. South Korea and China are championing regulatory incentives for companies to pursue profitability and boost shareholder returns. Companies in both countries are paying out more to shareholders in dividends and share buybacks.
Meanwhile, the weakening US dollar is another catalyst for AxJ stocks. Our research also shows that Asian exports have been resilient to trade shocks, with both technology and non-tech exports continuing to post solid growth since President Trump increased tariffs during 2025.
Fundamental Focus Can Get Ahead of the Market
These diverse trends share a common thread. In our experience, we’ve found that AxJ companies tend to deliver fundamental improvements well before the market catches on. In other words, active investors in AxJ stocks can use their research to identify opportunities and establish positions well ahead of the market.
That’s why we believe value equity strategies can be particularly effective in AxJ equities, by targeting companies with undervalued long-term earnings potential. We believe combining quantitative and fundamental research provides complementary perspectives that aim to discover opportunities created by investor behavior, which often prompts volatility—and mispriced shares—in AxJ markets.
To be sure, plenty of risks warrant attention. The Middle East conflict is having complex effects on emerging markets, as the energy shock fuels inflation and volatility. Deglobalization is shaking up supply chains, while China’s economic growth remains subdued. We think these risks bolster the case for taking a highly selective approach to AxJ equities.
Allocating to Asia is more than just buying benchmark exposure. Diverse markets shaped by complex global and local forces often reward local research, based on deep industry knowledge and country-specific nuance. Capturing Asia’s awakening equity potential in a risk-aware portfolio may depend less on regional beta—and more on the ability to uncover value where the market hasn’t looked yet.
