JPMorgan Asia Equity Strategy: Selectively overweight South Korea, Taiwan, and China; focus on AI, energy shocks, and policy themes

Overview

This is a JPMorgan Asia equity strategy report centered on 2026 Asian market allocation, macro shocks, relative country/region opportunities, and structural themes. The report notes that the market assumes the Iran-related situation will be resolved, but short-term outcomes remain uncertain; if Middle East energy disruptions persist, Asian economies will diverge depending on oil and gas, coal, and import structures. On the macro side, the report describes the current environment as 'stagflation,' with weakening growth and rising inflation coexisting, while also arguing that Asia's overall debt level is more moderate than that of the US, leaving room for fiscal policy adjustment and support.

Core views

The core views include: first, maintaining selective allocation in Asia, with South Korea, Taiwan, and China as the main overweight positions. Second, South Korea benefits from a sharp rise in memory prices, improvement from the cyclical bottom, reform trades in non-memory stocks, as well as governance reform and improved shareholder returns. Third, Taiwan's market as a whole is an AI proxy asset, but currency volatility will affect financial stocks. Fourth, China is supported by policy easing, marginal improvement in real estate, resilience to oil price shocks, potential shifts in household asset allocation, a K-shaped recovery in consumption, and biotechnology innovation. Fifth, India coverage places greater emphasis on energy imports, LNG and diesel consumption, reliance on key imports, production disruptions, and El Niño risk. Sixth, thematic investing focuses on AI commercialization, defense, the power grid, localization in Asian markets, stablecoins, robotics, and industrial automation.

Analysis framework

The report uses a top-down regional strategy framework, combining macro scenarios, geopolitical risks, energy exposure, fund flows, valuations, investor positioning, country/region policy reform, and industry themes to form relative allocation judgments for Asian equity markets. At the country level, it compares differentiated drivers across South Korea, Taiwan, China, and India; at the thematic level, it seeks long-term structural opportunities through indicators such as AI revenue and token usage, stablecoin market size, robot market share, defense spending, and power grid capex.

Methodology notes

• Macro scenarioStagflation framework

  Weakening growth combined with rising inflation

  The report shifts the current macro outcome from the previous 'Goldilocks' to 'stagflation' to explain changes in risk appetite, valuations, and policy room in Asian markets.

• Regional allocationCountry/region relative overweight framework

  Overweight South Korea, Taiwan, and China

  It compares the relative attractiveness of major Asian markets through factors such as earnings cycles, policy reform, AI exposure, real estate and consumption recovery, fund flows, and valuations.

• Risk exposureMiddle East energy shock exposure analysis

  Energy imports and power generation mix determine differences in impact

  The report compares Asian countries/regions' exposure to Middle East energy and points out that economies relying mainly on coal for electricity generation may be less affected.

• Thematic researchStructural thematic framework

  AI, defense, power grid, stablecoins, robotics, localization

  The report combines short-term macro trends and long-term industry trends to identify sustainable thematic opportunities in Asian equities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• South Korean equities

  Overweight

  Strengths

  Rising memory prices, improvement from the cyclical bottom, governance reform, improved shareholder returns, and relatively strong performance in non-memory stocks as well.

  Weaknesses

  Investors still need to see reforms truly deliver change; although crowded momentum has been released, execution remains key.

  Comparison

  Compared with some Asian markets, South Korea's reform and semiconductor cycle catalysts are clearer.

  Risks

  Reform execution falling short of expectations, a downturn in the global technology cycle, and geopolitical or currency volatility.

• Taiwan equities

  Overweight

  Strengths

  The overall market is viewed as an AI proxy asset, benefiting from the AI supply chain and earnings revisions.

  Weaknesses

  New Taiwan dollar volatility drags on financial stocks, and risk pricing is also an important variable.

  Comparison

  Compared with South Korea, Taiwan's AI characteristics are more concentrated; compared with China, policy-easing support is weaker.

  Risks

  Slowing AI demand, currency volatility, and pressure from valuations and earnings revisions.

• Chinese equities

  Overweight

  Strengths

  Green shoots are emerging in real estate, resilience under oil price shocks, continued policy easing, and structural opportunities from a K-shaped recovery in consumption and biotechnology innovation.

  Weaknesses

  Some structural problems still remain, and the recovery in consumption and real estate is uneven.

  Comparison

  Compared with India, the report places more emphasis on China's policy easing and resilience to energy shocks.

  Risks

  Repeated setbacks in real estate recovery, consumption divergence, and external tariff and geopolitical risks.

• Indian equities

  Cautious watch

  Strengths

  Long term, AI, demographics, and productivity offer potential support, and some deregulation measures are beginning to emerge.

  Weaknesses

  Energy vulnerability, LNG and diesel consumption, reliance on key imports, and El Niño risk are more prominent.

  Comparison

  Compared with South Korea, Taiwan, and China, the report focuses more on India's vulnerabilities rather than a clear overweight stance.

  Risks

  Rising oil prices, import disruptions, weather shocks, and production shutdowns in affected industries.

• Asian structural themes

  Thematic opportunities

  Strengths

  Defense expansion, power grid investment, stablecoins, robotics, industrial automation, and AI commercialization all have long-term growth narratives.

  Weaknesses

  Valuations for some themes may already reflect high-growth expectations, and AI monetization still faces challenges.

  Comparison

  Thematic opportunities span multiple markets and may be more diversified than single-country allocations.

  Risks

  Commercialization below expectations, changes in policy regulation, and capex cycle volatility.

Key data

• AI token consumption growth15x y-yThe report states that token consumption growth has accelerated to 15 times year-on-year.
• Model pricingSlowing price deflationThe report says the pace of decline in model pricing has slowed, affecting judgments on AI commercialization and monetization risk.
• South Korea governance reformMultiple rounds of corporate law and shareholder return reforms from 2024-2026Including expanded fiduciary duties, mandatory e-voting, cumulative voting, expanded audit committee selection, dividend tax cuts, treasury stock cancellation, and mandatory tender offers.
• South Korea e-voting adoption rateAbout 20%The report says mandatory e-voting will be implemented in 2027, while the current adoption rate is about 20%.
• Stablecoin themeMarket size has substantial upside tail potentialThe report discusses cash substitution in cross-border transactions and APAC stablecoin ecosystem stocks.
• Robotics themeIndustrial robot and service robot supply chainsThe report lists global industrial robot market share, major supplier countries of service robots, and China's industrial robot sales.

Impact & implications

The implication for asset allocation is that Asian equities are not a broad risk-on expansion, but are instead tilted toward markets and themes with policy support, industry momentum, or valuation-repair catalysts. South Korea's governance reform and semiconductor memory cycle provide a relatively clear rerating logic; Taiwan is supported by the AI supply chain but requires management of currency risk; China's policy support, innovative industries, and shifts in household asset allocation may create structural opportunities; India, by contrast, requires more cautious assessment of energy prices, import dependence, and weather shocks.

Risks

• Energy price shocks caused by Middle East tensions and disruptions to shipping through the Strait of Hormuz.
• Stagflation pressure from weakening growth and rising inflation.
• Volatility in the US dollar, exchange rates, and fund flows affecting Asian valuations and financial sector performance.
• US tariffs, sanctions, and export controls affecting Asia's export chain.
• AI commercialization and monetization falling short of market expectations.
• If South Korea's governance reform lacks evidence of execution, it may weaken the rerating logic.
• China's real estate and consumption recovery may be uneven or subject to setbacks.
• India faces risks from energy imports, disruptions to key supplies, and El Niño.

What to watch

• Whether the Iran and Middle East situation eases, and whether vessel traffic through Hormuz returns to normal.
• The impact of oil, LNG, and diesel prices on Asian importing countries.
• The DXY dollar index and Asian currency volatility, especially the New Taiwan dollar.
• Whether inflows into emerging market funds expand from passive to active money.
• Evidence of execution for South Korea's corporate law reform, Value-up plan, mandatory e-voting, treasury stock cancellation, and dividend tax reform.
• Whether memory prices and South Korea QMI continue to recover.
• Earnings revisions and changes in risk premium for Taiwan's AI supply chain.
• China's real estate green shoots, the extent of policy easing, consumption divergence, and biotechnology catalysts.
• Stablecoin regulation and performance of APAC ecosystem stocks.
• Order trends in robotics, industrial automation, defense, and power grid capex.