In-depth Analysis of 2025 Asian Stock Market Performance and 2026 Outlook

According to the latest market data [0][2][3], the Asian stock market recorded its best annual performance in years in 2025. The MSCI Asia Pacific Index (in USD) surged by approximately 28% during the year, marking the first time since 2020 that the Asian stock market outperformed US and European benchmark indices in a single year [3]. The overall increase of Asian stock market indices exceeded 25% [2], far outpacing most markets globally.

• South Korea KOSPI Index
  : Expected to soar by over 75%, becoming one of the best-performing markets in Asia and globally [3]
• Taiwan Capitalization Weighted Index
  : Up about 60% [1][3]
• Hong Kong Hang Seng Index
  : Up nearly 28% year-to-date [3]
• Nikkei 225 Index
  : Up over 26% (another source shows about 30%) [3]
• Singapore Straits Times Index
  : Up 23% [3]

• Shanghai Composite Index
  : Expected to rise by 18% in 2025 [3]
• India Nifty 50 Index
  : Achieved an annual gain of about 10% [3]
• Australia S&P/ASX 200 Index
  : Up 7% [3]

For reference on recent trends, the MSCI Asia Pacific Index rose by approximately 9.56% (+2528.50 points) between October and December 2025, with 20-day and 50-day moving averages at 28132.15 and 27810.30 respectively, indicating continued strength in the fourth quarter [2].

The artificial intelligence wave was the most important driving force for the Asian stock market in 2025 [3][4][5]:

• Asian Semiconductor Dominance
  : Asia accounts for over 75% of global semiconductor manufacturing capacity and is expected to maintain its dominance over the next five years [3]
• Segmentation Advantages
  :
  • Taiwan (China) and South Korea
    : Lead in advanced process nodes (below 5nm) [3]
  • Japan
    : Leading in photoresist and silicon wafer sectors [3]
  • Mainland China
    : Rapidly expanding mature process node (28nm and above) capacity, accounting for about one-third of global supply [3]

• Fed Monetary Policy Shift
  : The Federal Reserve announced it will end quantitative tightening (QT) in December, which is expected to boost global liquidity and give Asian central banks room to cut interest rates [4][5]
• Ample Liquidity Environment
  : The global central bank “interest rate cut wave” has released ample liquidity [3], prompting investors to shift from the US market to Asian economies with more attractive valuations [1][5]

###3. Corporate Governance Reform (Impact Level:75/100)

• **South Korea’s “Value Enhancement Plan”: The Lee Jae-myung government has promoted three major initiatives: corporate governance reform, consumption stimulus, and AI investment, aiming to narrow the valuation gap between Korean companies and global peers [3]
• Japanese Corporate Reform
  : Improving shareholder returns (dividends + share buybacks), and enhanced corporate governance has attracted long-term capital [1][3]

###4. Valuation Depression Advantage (Impact Level:70/100)

• Discount Relative to US Stocks
  : Valuations of Asian stocks (excluding Japan) still trade at a discount to developed markets [5]
• Capital Rotation
  : Investors are seeking Asian economies with more attractive valuations [5], and a weakening dollar trend usually benefits Asian stocks (excluding Japan) [1]

###5. Currency Factors (Impact Level:65/100)

• Weak Yen
  : Sustained weakness allows foreign investors to buy Japanese assets at lower costs, stimulating demand [3]
• Impact of Exchange Rate Fluctuations
  : The performance of the MSCI Asia Pacific Index and MSCI Emerging Markets Index (in USD) is affected by exchange rate changes

###6. Domestic Consumption Recovery (Impact Level:60/100)

• China Consumption Drive
  : Domestic consumption contributed about 60% of China’s economic growth between 2021 and 2024 [1]
• India Tax Cut Stimulus
  : Reductions in Goods and Services Tax (GST) and personal income tax are expected to reduce household tax burdens and stimulate consumption [1][5]
• Service Sector Expansion
  : The service sector such as healthcare, education, and elderly care continues to expand [1]

Based on the views of major institutions and market data [1][4][5], the strong performance in 2025 is expected to continue into 2026:

###1. Positive Factors

:

• Both Schroders and Invesco point out that the AI boom is expected to continue into 2026 and become a major driver of Asian growth [4][5]
• PwC predicts that the global semiconductor demand will have a CAGR of 8.8% from 2024 to 2030 [4]
• Asia’s AI capital expenditure has surpassed that of the US and Europe in recent years, and this trend is expected to continue [4][5]

:

• The Fed’s end of QT will boost global liquidity, supporting Asian stocks and interest rate-sensitive sectors [4][5]
• The global monetary policy environment is expected to remain loose [5]

:

• The P/E ratio gap between Asian (excluding Japan) tech stocks and US tech stocks is significant, making valuations attractive [4][5]
• The relative valuation of MSCI Asia Pacific (excluding Japan) and developed market stocks still has an advantage [1]

:

• Major Asian markets such as Mainland China, South Korea, and Japan continue to benefit from corporate reform initiatives [4][5]
• South Korea is accelerating corporate governance reforms to enhance shareholder value, which is expected to increase dividends and attract long-term investors [5]

###2. Potential Risks

:

• Some industry sectors are overly concentrated, and capital expenditures overly dependent on debt financing raise questions about the sustainability of corporate profits [4]

:

• Trump’s tariff policies disturbed the market multiple times in 2025, and related uncertainties need to be monitored in 2026 [3][5]

:

• Growth momentum in 2026 may shift from valuation expansion to actual profit growth, requiring corporate profit realization [3]

:

• Geopolitical factors such as Sino-Japanese tensions may bring short-term volatility [2]

###3. Institutional Expectations

• Invesco
  : Maintains a positive outlook on Asian stocks in 2026, believing that supported by policy measures, strong domestic demand, and AI-driven innovation, it is expected to seize cyclical opportunities and long-term trends [1][5]
• Schroders
  : Expects the Asian market to be influenced by two major themes in 2026: the AI boom and the Fed’s end of QT, and is optimistic about the tech sector [4]
• Goldman Sachs
  : Predicts that the total return of the MSCI Asia Pacific (excluding Japan) Index and MSCI Emerging Markets Index (in USD) will reach 18% in 2026, which is expected to outperform the S&P 500 Index’s expected 15% [3]

###1. Market Selection

• Overweight
  : South Korea, Taiwan (beneficiaries of AI and semiconductors), Japan (corporate reform + AI)
• Neutral Weight
  : India (consumption recovery + tax cut policies)
• Watch
  : China (policy support + valuation repair), ASEAN markets (domestic demand + demographic dividend)

###2. Sector Allocation

• Tech Hardware/Semiconductors
  : Core beneficiaries of sustained growth in AI capital expenditure [3][4][5]
• Consumer Services
  : Benefit from income growth and service sector expansion [1][5]
• Financials/High Dividends
  : Benefit from the interest rate cut cycle and valuation repair

###3. Risk Management

• Moderately diversify investments to avoid over-concentration in a single market or theme
• Monitor the impact of exchange rate fluctuations on USD-denominated assets
• Closely track the realization of corporate profits

The outstanding performance of the Asian stock market in 2025 was mainly driven by multiple factors such as AI and semiconductor demand, global interest rate cut cycle, and corporate governance reform. Looking ahead to 2026, against the backdrop of the continued AI boom, improved liquidity environment, attractive valuations, and deepening corporate reform [4][5], the strong performance of the Asian stock market is expected to continue. However, risks such as market concentration, whether profit growth can be realized, and trade frictions need to be watched [4][5]. Overall, the Asian market will still provide attractive investment opportunities for global investors in 2026, especially AI enablers and beneficiaries, consumption recovery beneficiaries, and corporate reform beneficiaries [1][4][5].

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:
[0] Gilin API Data (market index data)
[1] Invesco - 2026 Investment Outlook - Asian Stocks (https://www.invesco.com/tw/zh/investment-ideas/talkingpoints/asia-equities-outlook.html)
[2] Schroders - Monthly Economic Review and Outlook - November 2025 (https://www.schroders.com/zh-hk/hk/individual/insights/monthly-markets-review-202511/)
[3] Year-end Review of Non-US Stock Markets: Boosted by Interest Rate Cuts + AI Double Buff, Multiple Country Indices Hit Records - Futu News (https://news.futunn.com/post/66716518/year-end-review-of-non-us-stock-markets-boosted-by)
[4] Investment Sentiment in Asian Markets Becomes More Positive; Tech Sector and Gold Investment Opportunities Are Favored in 2026 - Schroders (https://finance.sina.com.cn/money/nmetal/roll/2025-12-25/doc-inhcyrup3559744.shtml)
[5] Invesco: Optimistic About Asian Stocks in 2026; AI Remains a Structural Growth Theme in the Asian Market (https://finance.sina.com.cn/stock/hkstock/ggscyd/2025-12-25/doc-inhcywam9005678.shtml)