Attracting global capital, Asia's new "super cycle" is unfolding.

Author: Bao Yilong

Investors are turning their attention to Asia, seeking the next breakout point for the global stock market rally.

Driven by the wave of artificial intelligence, South Korea’s stock market led the world in gains this month, attracting a large influx of capital. Implied volatility in the options market has risen to extreme levels, with derivatives strategists competing to recommend long structures.

All these signals point to the same conclusion: the Asian rally may just be beginning.

According to sources from the trend-following trading desk, Morgan Stanley’s Asia-Pacific team has recently emphasized that the underlying drivers of Asia’s industrial cycle are shifting from traditional real estate and general manufacturing inventory replenishment to AI and its infrastructure, energy security and transition, defense, and supply chain resilience investments.

(By 2030, Asia’s total fixed investment is expected to reach $16 trillion)

Morgan Stanley forecasts that the scale of fixed asset investment in Asia could rise from about $11 trillion in 2025 to $16 trillion by 2030, with a nominal annual compound growth rate of approximately 7% from 2026 to 2030, significantly higher than recent levels.

(From 2026 to 2030, Asia’s total fixed capital investment will maintain a 7% compound annual growth rate)

The underlying logic of the “super cycle”: Asia’s capital expenditure is set to accelerate significantly

The most distinctive difference in this round of Asia’s industrial cycle is that AI has pushed capital expenditure back to the forefront.

Over the past two years, market discussions about AI have focused more on models, applications, and the “Big Seven” U.S. tech giants. But from an Asian perspective, the true meaning of AI is: a comprehensive expansion of chips, storage, servers, optical modules, data centers, power systems, and cloud infrastructure.

Morgan Stanley mentioned that the proportion of global CIOs prioritizing AI has risen to 39%. Correspondingly, global AI data center investments are expected to reach about $2.8 trillion between 2026 and 2028, with an annual growth rate of approximately 33%.

(The capital expenditure related to data centers in the global AI field will further increase)

Asia is at the center of the AI hardware supply chain: from TSMC, Samsung, SK Hynix to mainland Chinese semiconductor, server, optical communication, and cloud infrastructure companies, all will benefit from this investment cycle.

The report also estimates that capital expenditure by major chip companies could rise from about $105 billion in 2025 to approximately $250 billion annually by 2028. This indicates that AI is a capital-intensive race.

China’s role is particularly noteworthy.

Morgan Stanley believes that China’s AI is a competition of comprehensive system capabilities: computing power determines speed, cloud platforms determine scale, token usage determines economics, and application scenarios determine value attribution.

Against the backdrop of ongoing chip restrictions, the linkage of domestically produced AI chips, local cloud platforms, and large model ecosystems is becoming a new mainline for China’s tech investments.

(The relative advantages of the AI industries in China and the U.S.)

Their forecast shows that China’s AI chip market could reach $67 billion by 2030, with domestic self-sufficiency expected to rise to 86%.

Whether this forecast will fully materialize remains to be seen, but the direction is very clear: the domestication of computing power has shifted from a policy proposition to a commercial one.

China’s export story of manufacturing is expanding from the “three-piece set” of electric vehicles to robots

In recent years, the most prominent exports in China’s structure have been the “new three” — electric vehicles, lithium batteries, and photovoltaics.

The report suggests that the next phase of China’s manufacturing growth may come from robots, especially industrial robots and humanoid robots.

Morgan Stanley pointed out that China has already captured about half of the global incremental demand for industrial robots. By 2025, global shipments of humanoid robots are expected to be around 13k to 16k units, with about 90% from Chinese manufacturers. In contrast, markets like the U.S. and Japan are still mostly in prototype or early validation stages.

Interestingly, the report draws a comparison between China’s current robot exports and the electric vehicle exports around 2019: at that time, EV exports had not yet entered a boom phase, but supply chains, policy support, and manufacturing capacity were already in place.

(China’s humanoid and industrial robot industries are at a similar developmental stage as the early phase of the electric vehicle industry)

Today, the robot industry also shows similar characteristics — the market size is still small, but the industry chain is expanding rapidly.

Data shows that China’s humanoid robot and related exports reached about $1.5 billion in March 2026 on a 12-month rolling basis, close to the level of China’s EV exports in early 2020.

In the following years, EV exports expanded rapidly, reaching about $70 billion for the full year of 2025, with quarterly annualized growth further rising to approximately $86 billion.

Of course, whether robots can replicate the EV growth curve depends on cost reductions, application scenarios, and overseas regulatory environments. But China’s advantages in parts, complete machine manufacturing, supply chain coordination, and rapid iteration are already beginning to show.

Energy security and defense spending are providing second and third growth poles

Another aspect of AI data center expansion is the huge demand for power and energy infrastructure. The more intensive the computing power, the more critical electricity, cooling, power grids, and energy storage become.

Morgan Stanley believes that energy shocks will catalyze increased investment in energy security in Asia, and the share of renewable energy in Asia’s primary energy consumption remains low, leaving significant room for future investment.

(Recycling energy in Asia’s energy mix remains small, with China benefiting greatly from increased spending related to energy transition)

China’s advantages in photovoltaics, electric vehicles, and lithium batteries mean its related exports on a 12-month rolling basis are approaching $200 billion, making it a major beneficiary of this energy transition capital expenditure.

Meanwhile, defense spending is also showing structural upward trends across many Asian economies.

Defense expenditures as a percentage of GDP have increased in Japan, South Korea, and India. China and South Korea are also among the top ten global defense exporters.

(Defense spending as a percentage of GDP is rising across the region)

For capital markets, this means that industries such as high-end manufacturing, materials, electronic components, and precision equipment could enjoy longer-term support.

In other words, AI provides demand for computing power, energy supplies infrastructure constraints, and defense and supply chain security offer geopolitical resilience investments. The combination of these factors forms the foundation of Asia’s super cycle.

Who benefits most? China, South Korea, and Japan are at the core of the industry chain

From the regional beneficiaries’ order, Morgan Stanley highlights China, South Korea, and Japan.

China excels in industry chain completeness, manufacturing scale, engineering capability, and emerging export categories like new energy vehicles and robotics.

South Korea has advantages in storage, HBM, batteries, and some equipment materials; Japan remains strong in semiconductor equipment, materials, precision manufacturing, and industrial automation.

The proportion of capital goods exports also indicates the pattern. The report shows Thailand at about 38%, China at about 36%, Japan at about 35%, and South Korea at about 30%. This suggests that when the global equipment investment cycle restarts, these economies’ external demand elasticity will be more pronounced.

Finally, looking at the structure of capital markets, sectors related to industry, technology hardware, and materials have higher weights, making macro capital expenditure cycles more likely to reflect in stock market performance.

This also means that in the coming years, the valuation logic of Asian markets may change, with focus on which companies in the capital expenditure chain have orders, technological barriers, and profit elasticity.

Unavoidable risks: oversupply, profit margins, and geopolitical frictions

The super cycle narrative is compelling, but it does not mean all industries and companies will benefit simultaneously.

First, the expansion of capital expenditure may lead to temporary supply pressures.

China’s new energy industry has demonstrated that scale advantages can quickly open up global markets, but they may also bring price competition and profit margin fluctuations. Industries like robotics, AI hardware, photovoltaics, and energy storage could face similar issues in the future.

Second, technological limitations and export controls remain variables.

While there is significant room for domestically produced AI chips, there are still gaps in advanced processes, HBM, EDA, and equipment materials. The report also notes that domestic chips still lag behind top U.S. chips, but competitiveness can be improved through system optimization, advanced packaging, and software adaptation.

Third, employment structures will also be affected by AI.

Morgan Stanley’s “Future of Work” research estimates that about 90% of jobs will be affected to varying degrees by AI automation and augmentation. In their sample companies, early AI applications have already resulted in over 11% productivity gains, but also an average net job reduction of about 4%, with significant differences across countries and industries.

For China, balancing efficiency improvements with retraining and job transition will be a key long-term policy and corporate management challenge.

Fourth, market volatility may increase. The report also warns that the divergence between bullish and bearish scenarios in regional markets will widen, meaning investor expectations for AI capital expenditure, export orders, and profit realization will continue to differ.