Eastspring Investments data shows Asia outperforming global theme to continue in the second half.

Prudential's asset management arm, Eastspring Investments, which manages $269 billion in assets, expects that the theme of Asia outperforming the global market will continue in the second half of the year. However, tightening monetary policies and the renewed strength of the US dollar make active stock selection and allocation even more important.

Ray Farris, Chief Economist at Eastspring Investments, stated that the energy shock has prompted the Federal Reserve to take a more hawkish stance, driving the dollar higher. Coupled with rising global upstream inflationary pressures, some Asian central banks have been forced to start raising interest rates. This is particularly evident in Indonesia and the Philippines, while South Korea and India may raise rates later this year. Investors need to adopt different strategies based on the varying conditions in different markets within the region.

Vis Nayar, Chief Investment Officer at Eastspring Investments, noted in his assessment of the outlook for Asian and emerging market assets that the capital expenditure boom in artificial intelligence (AI) infrastructure is real and sustainable. However, to outperform the market, investors cannot solely rely on index performance; they must also identify companies that can truly convert AI investments into returns, including opportunities across the entire physical supply chain—from power systems and high-speed internet to precision components and even satellites. Meanwhile, Asia's diverse economic landscape means the energy shock brings both opportunities and divergence and mismatches.

On the equity side, Eastspring Investments continues to focus on Asian information technology hardware and China's A-shares. With the end of the Iran conflict and falling energy prices, more undervalued investment opportunities are emerging in ASEAN and India, which can serve as diversification tools for portfolios.

Although the market generally views artificial intelligence as a US-led revolution centered on software and chips, Asia is leading the hardware revolution by providing semiconductor chips, hardware, and infrastructure to support this transformation. Given that the US accounts for over 70% of global technology benchmarks, investors may overlook the attractive opportunities from concentrated allocations to Asian tech sectors and the potential of emerging innovative enterprises.