AI bubble fears and policy splits loom over Asia stocks in 2026
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AI bubble fears and policy splits loom over Asia stocks in 2026
09 mins
(Bloomberg) — Asian equities kicked off the new year with sharp gains, but the advance may face headwinds from worries over an artificial-intelligence bubble and diverging interest-rate paths across the region.
Asia’s deep ties to the global AI supply chain leave it exposed to any sharp reversal on Wall Street, even as cheaper valuations for Chinese chipmakers and Beijing’s push for technological self-sufficiency offer some buffer. The sector is firmly in investors’ sights after MSCI’s Asia stock index beat global peers by nearly five percentage points last year, its strongest relative showing since 2017.
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Policy divergence will be another key driver, with growth-focused stances in China and India contrasting with a bias toward curbing inflation in Japan, Australia and New Zealand. Meanwhile, a rotation may emerge into laggards seen as better shielded from external shocks. South Korea — last year’s standout — may extend gains if market reform momentum holds.
Below are the five areas of focus for Asia equity investors in 2026:
The investment frenzy over AI played a key role in driving Asian stocks’ outperformance versus their global peers last year. That excitement spilled over into the new year, pushing a regional information tech gauge to a record on Friday.
While some see Asia a better venue for AI exposure given cheaper valuations, others point to the more pronounced risk of concentration of a few major tech firms in markets such as Taiwan and Korea. Volatility may increase as the rally extends.
“We’re calling more of an AI fatigue as opposed to a bubble,” said Ken Wong, an Asian equity portfolio specialist at Eastspring Investments Hong Kong. If there’s a pullback in overall AI capex or earnings trajectory starts to deteriorate, there will be some risks, he said.
While there’s caution against Wall Street’s AI exuberance, optimism is building about Chinese chipmakers as the nation doubles down on technological self-sufficiency. Beijing is weighing a package of incentives worth as much as $70 billion to support its semiconductor industry.
Investors’ enthusiasm was evident in the recent blockbuster trading debuts of MetaX Integrated Circuits Shanghai Co. and Moore Threads Technology Co. The strong demand has prompted their peers to rush to raise funds in the stock market, with Baidu Inc.’s AI chip unit and GigaDevice Semiconductor Inc. among those in the pipeline.
The appeal of Chinese tech stocks also stems from their cheaper valuations. A key gauge of such shares listed in Hong Kong now trades at 19 times forward earnings, versus 25 times for the Nasdaq 100 Index.
The policy outlook of the Federal Reserve, which is currently expected to cut rates twice in 2026, will continue to determine capital flows and risk sentiment across Asia. Its monetary easing would open up space for central banks in countries from India to Thailand to lower borrowing costs to spur economic growth.
In contrast, the Bank of Japan is under pressure to raise rates more aggressively to curb inflation and excessive yen weakness. Similarly, New Zealand’s central bank has signaled it had likely finished cutting rates while expectations are also growing for its Australian counterpart to pivot to policy tightening.
“India’s sustained low‑rate environment may provide gentle tailwinds for its equity market, while further easing in Thailand, Malaysia, and potentially China could boost stocks,” said Dilin Wu, research strategist at Pepperstone Group. “Overall, markets and sectors with policy flexibility and strong earnings resilience are set to be the winners, whereas highly leveraged or rate‑sensitive assets face greater pressure.”
As some investors diversify away from US assets and the crowded AI trade, they’re positioning for a revival of the laggards.
India’s NSE Nifty 50 Index finished 2025 up 10.5%, trailing the MSCI AC Asia Pacific Index by the widest margin since 1998. Investors expect lower consumption-tax rates and interest-rate cuts to help improve earnings and drive a trend reversal. Some also bet that Indonesia can benefit further from the government’s stimulus push. Southeast Asia overall lagged the broader region last year.
“India and ASEAN are interesting for being very non-AI, while some of these markets have underperformed so there might be value,” said Xin-Yao Ng, a fund manager at Aberdeen Investments. “A good pick will be one with resilient cash flow that’s less dependent on macro/politics, while paying high dividend.”
The spotlight will also be on Korea, where stocks staged a 76% world-beating rally last year, powered by the AI boom as well as optimism about corporate and market reforms. The benchmark Kospi Index gained another 2.3% on Friday to close above 4,300, marching toward the 5,000 level targeted by President Lee Jae Myung.
AI tailwinds remain strong for the country’s chip heavyweights. Samsung Electronics Co. extended its record on Friday after its co-chief executive officer said customers were saying “Samsung is Back.” That momentum was reinforced by Korean data last week showing a 43% jump in December semiconductor exports, underscoring Samsung’s and SK Hynix Inc.’s pivotal role in the global AI boom.
The next leg of the bull run will also hinge on government efforts to further improve corporate governance, as well as steps to boost small-cap stocks.
