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

Author: Bao Yilong, Wall Street Insights

Investors are turning their attention to Asia, seeking the next breakthrough in the global stock market rally.

Driven by the wave of artificial intelligence, South Korea’s stock market has 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.

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 energy transition, defense, and supply chain resilience investments.

(By 2030, Asia’s total fixed investment will increase to $16 trillion)

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

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

“Super cycle” underlying logic: Asia’s capital expenditure needs to accelerate significantly

The core 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 notes that the proportion of global CIOs listing AI as a top priority 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 around 33%.

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

Asia is at the heart 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 projects that major chip companies’ capital expenditure 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 especially noteworthy.

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

Against the backdrop of ongoing chip restrictions, the linkage of domestic AI chips, local cloud platforms, and large model ecosystems is becoming a new focus of Chinese tech investment.

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

Their forecast suggests that China’s AI chip market could reach $67 billion by 2030, with domestic self-sufficiency rising 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 is expanding from the “three-piece set” of electric vehicles to robots

In recent years, China’s most impressive export sectors 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 points 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.

More interestingly, the report draws a parallel between current Chinese robot exports and the pre-2019 period of electric vehicle exports: at that time, EV exports had not yet exploded, 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 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 by March 2026, China’s humanoid robot and related exports reached about $1.5 billion in a 12-month rolling total, close to the level of China’s EV exports in early 2020.

In the following years, EV exports expanded rapidly, reaching about $70 billion in total exports in 2025, with quarterly annualized speeds further rising to around $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 engines

Another aspect of AI data center expansion is the huge demand for power and energy infrastructure. The denser 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 since the share of renewable energy in Asia’s primary energy consumption remains low, there is still significant room for future investment.

（Renewable energy’s share in Asia’s energy mix remains small; China benefits greatly from increased energy transition spending）

China has advantages in photovoltaics, electric vehicles, lithium batteries, and related sectors, with a rolling 12-month export scale approaching $200 billion, making it a key beneficiary of this energy transition capital expenditure.

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

Japan, South Korea, and India have all increased their defense expenditure as a percentage of GDP. China and South Korea are 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 demand for high-end manufacturing, materials, electronic components, and precision equipment could enjoy longer-term support.

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

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

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

China benefits from a complete industrial chain, manufacturing scale, engineering capabilities, 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 means that when the global new equipment investment cycle begins, these economies will have more elastic external demand.

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

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

Unavoidable risks: oversupply, profit margins, and geopolitical frictions

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

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

China’s new energy industry has proven that scale advantages can quickly open 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.

Domestic AI chip localization has huge potential, but there are still gaps in advanced processes, HBM, EDA, and equipment materials. The report also mentions that domestic chips still lag behind top U.S. chips, but system optimization, advanced packaging, and software adaptation can enhance competitiveness.

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 increased productivity by over 11%, but also resulted in 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 regional bull and bear scenarios will widen, meaning investor expectations for AI capital expenditure, export orders, and profit realization will continue to differ.