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Duncan Robertson

Market Outlook

Q2 Asia Outlook

Outlook
12 July 2026

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Portfolio Manager, TT Asia and TT Global-Smid Cap Strategies

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Latest Asian economic and market outlook. 

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The outlook for Asian markets has improved meaningfully over the past month as the reopening of the Strait of Hormuz has seen oil prices fall to $70, barely above their pre-war levels. This has removed a significant risk to inflation, and also to terms of trade for the Asian region. In this context, the markets that were most vulnerable – India and ASEAN – should benefit most.

The overall environment might be characterised as goldilocks and is positive for risk assets globally. Labour markets in the West appear to be lukewarm at best, with early signs of AI impact, particularly in graduate level roles. With the Strait of Hormuz open, we once again see energy markets as being structurally oversupplied. The environment in China continues to be deflationary – and that deflation is being exported, especially in areas such as EVs. These deflationary factors help balance the inflationary impulse from the one key area of strength in the global economy – the AI datacentre capex cycle, which shows no signs of slowing.

There are some reasons for caution: hyperscalers are now investing most of their free cash flow into capex, and, at an aggregate level, the levels of investment are becoming meaningful in relation to GDP.

However, there doesn’t appear to be any hard catalyst to stop the investment cycle. The CEOs of the large hyperscalers have been clear that they would rather over invest than under invest: falling behind in AI could be existential; overinvesting merely painful. Their balance sheets remain strong, and, as Alphabet showed, they are willing and able to raise further equity. 

At a macro level, the end of such an investment cycle is usually caused, at least in part, by tightening, which we do not foresee. It is also typically associated with rising credit spreads, which are currently well behaved.

At the micro level, our regular interactions with companies across the AI datacentre supply chain continue to deliver a consistent message of strength, with many companies conveying unusually long visibility of demand.

Consequently, we continue to see significant opportunity in the AI supply chain, as well as associated beneficiaries such as power equipment. However, we are also mindful of valuations and cognisant of how concentrated the Asian indices have become. We therefore balance our tech exposure in Korea and Taiwan with domestic demand focused stocks in India and ASEAN.

One of the more puzzling market moves of late has been the strengthening of the USD since the opening of the Straits. It is puzzling because, in contrast to the US, Europe and Asia are significant importers of energy. The end of tensions should have been positive for the Euro and Asian currencies, particularly given the fact that many Asian countries, most notably Taiwan and Korea, are seeing record trade balances due to strength in semiconductor exports. Most Asian currencies are very cheap on a REER basis; the dollar continues to look expensive. Significant potential for currency appreciation is an underappreciated aspect of the Asian equity investment case, and a key reason for investors to retain exposure to domestic demand in Asia, even as the indices become ever more dominated by technology. 

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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