29 Jun 2026

Eastspring Investments Mid-Year 2026 Market Outlook: Navigating a Bifurcated Asia

• Eastspring expects key theme of Asian outperformance to continue in the second half of the year. However, monetary policy tightening and renewed US dollar strength increase the importance of well researched active security selection
• In equities Eastspring maintains focus on Asian IT hardware and select China A-shares. Falling energy prices with end of the Iran war will uncover undervalued opportunities in ASEAN and India as portfolio diversifiers
• Asia offers attractive income generation from high dividend paying equity and competitive all-in fixed income yields

SINGAPORE (29 June 2026) – Eastspring Investments (“Eastspring”), the USD269 billion¹ asset management business of Prudential plc, anticipates that the end of the Iran war and fall in energy prices will improve Asia’s investment landscape. However, not all economies and markets will benefit equally.

Ray Farris, Chief Economist, Eastspring Investments, says, “The end of the Iran war clearly improves the outlook for Asia’s economies. However, investor differentiation across the region is still necessary. One reason is that the energy shock contributed to a hawkish shift by the US Federal Reserve (Fed) that is strengthening the USD. This has combined with now higher upstream inflation pressure globally to force some Asian central banks to begin hiking policy rates. Indonesia and the Philippines stand out, but rate hikes are possible in Korea and India later this year.”

Additionally, the Artificial Intelligence (AI) capex boom is creating bifurcated growth across economies and sectors. North Asia’s economies are the main beneficiaries relative to ASEAN and India. However, careful research reveals IT-related opportunities in India, Singapore, and Thailand. In contrast, consumption growth is weak in almost all economies, even leading IT exporters.

Farris adds, “So what changes? Lower energy prices should begin repairing Asian trade balances later this year, helping to stabilise currencies. Southeast Asia and India stand to benefit most. A Fed shift away from hawkishness, although not our base case, would accelerate this. Reduced energy subsidies may allow redirection of fiscal spending to investment in Southeast Asia and India that broadens growth beyond IT.”

Active management in Asia is a necessity - not a preference

In navigating this bifurcated, changing environment, Eastspring is focusing on selectively capturing structural winners while actively managing downside risks through diversification – ensuring portfolios are not overly exposed to crowded technology and energy trades – to manage volatility and preserve the ability to compound returns over the long term.

China: China’s economy is a relative winner in the current market environment given its access to energy and commodity reserves and war-driven surge in global demand for electric vehicles and alternative energy. However, monetising the 4.8% GDP growth we expect requires going beyond the broad indexes for careful security selection. Exports of “New Three” products are strong, but profitability in these sectors is challenged. Slowing consumption growth and intense sector competition is affecting H-share earnings. Eastspring continues to focus on IT and beneficiaries from China’s strategic industrial investment. The team is also focused on where Chinese government underspending in H1 will reverse in H2.

India: Despite being one of the worst-performing markets in the region at the index level, India offers high earnings growth in some sectors at now lower valuations, if one adopts an active security selection approach. India’s very low equity correlation with US equities helps diversify portfolios against what is now very high US concentration in the tech sector. Importantly, much of India’s poor performance has come from the impact of the energy price shock on India’s currency and earnings expectations, both of which should now moderate or reverse. The recent drop in oil prices should improve India’s trade balance and reduce future upstream cost pressure. Equally important for the Indian rupee, the Reserve Bank of India’s (RBI) recent program to stimulate inflows from non-resident Indians is likely to provide some support for the Indian rupee and forestall a sharper rate hike cycle. We expect the RBI to raise at least USD 35 billion and don’t rule out as much as USD 50 billion in inflows.

Japan: Japan is in the midst of a robust cyclical upswing combined with a profit boost from corporate reform. Its export outlook is strong, domestic capex is surprising to the upside, and the acceleration in real household income to 2% should support consumption growth. This mix is driving earnings upgrades across multiple sectors. Eastspring is positive on industrials and have rotated into more defensive and domestically oriented names, including select companies in healthcare, medical equipment, and consumer services, which present more appealing entry points and greater alpha potential in less crowded market segments.

Fixed income, Asia tech views

Fixed income: In a market increasingly concentrated in a few equity themes, Asian fixed income offers attractive yields and important diversification benefits. Eastspring remains constructive on Asian credits. All-in yields remain attractive, and with global equity markets narrowly focused on a few themes, a bond allocation can enhance diversification in portfolios. Eastspring continues to focus on generating resilient carry for portfolios and looks to extend duration when there is greater conviction that inflation and interest rates have peaked. The team prefers economies that have stronger balance of payments positions, including SGD and AUD.

Asia tech: AI is becoming a structural growth driver for Asia, anchored by data centre build-outs and leadership in tech hardware supply. While AI is widely perceived as a software and chips revolution led by US, Asia leads the enabling hardware revolution by supplying semiconductor chips, hardware and infrastructure. With the US’ dominance (>70%) in global technology benchmarks, investors risk overlooking attractive opportunities and emerging innovators which a dedicated Asia tech allocation can offer.

• Taiwan and Korea stand out as the region’s key growth markets as we transition from the Agentic AI phase to the Physical AI phase. Demand for AI infrastructure continues to outpace supply after years of underinvestment in manufacturing capacity. In particular, electronics manufacturers and selected supply-chain companies are better positioned than the broader semiconductor sector, given stronger pricing power, rising average selling prices and more attractive earnings growth.

Vis Nayar, Chief Investment Officer, Eastspring Investments, concludes, “The AI infrastructure capex boom is real and durable, but outperformance will require investors to look beyond the index and identify the companies that genuinely monetise it across the full physical supply chain, from power systems and high-speed interconnects to precision components and satellites. At the same time, Asia’s heterogeneity means that the energy shock has created as many dislocations as opportunities. Outperformance in this environment requires deep fundamental research and genuine security selection – passive exposure to broad indices may leave investors either overweight crowded technology positions or exposed to energy-import headwinds. Active, selective management in Asia has never been more essential.”

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