Asia Thematic Strategy: Why AI remains foremost

Price action in Asia in 2026 can be characterized at the highest level as AI vs non-AI, with lesser differentiation between other sectors/markets. We expect this pattern to carry through into 2027, with the outcome for AI stocks determining not only allocation alpha but also overall market beta. AI stocks in Asia are now >50% of index weight and are likely to contribute ~70% of earnings growth in 2027 (similar to 2026). AI exposure in Asia is primarily in the hardware layer, both in the global/US ecosystem (Taiwan, Korea and some China) and the China ecosystem. The economics of this hardware layer are currently very positive – with supply-demand tightness (expected at least through 2028) leaving Asian firms with significant pricing power to go with volume growth – driving ecosystem net income to over $1tn by 2028 and FCF to ~$700bn. The key question for these stocks now is about the duration of the spending cycle, which depends largely on how well AI is monetized above the hardware lay