In a world defined by shifting policies and unpredictable risks, it’s more important than ever to stay adaptable and focused. Our mantra for investing in this new world is simple: “Embrace the chaos, control the controllables”. We do this by focusing on the debates that matter most, questioning consensus, and seeking out the risks and opportunities across markets. In this report, we share our responses to the key debates within Shikhara’s Investment Team that are shaping our investment outlook for the months ahead. Enjoy!
The MSCI All Country Asia Ex-Japan Index gained 2.63% (in USD terms1) over the month of July. Relative to the rest of the region, Thailand was the most notable outperformer, followed by Taiwan, while India and the Philippines were the laggards. Sector-wise, Health Care and IT led performance, while Energy and Financials were the worst performers.
MSCI China gained 4.81% in July, extending a multi-week rally on the back of improving sentiment toward US-China trade talks and mounting expectations for policy support. Notably, flexibility on the US tariff deadline (now reportedly extended to November) and positive headlines (e.g., NVIDIA’s green light to resume H20 chip shipments) supported risk appetite. The anti-involution narrative and a robust H1 GDP print of 5.3% y/y drove market optimism, though the month concluded with some profit-taking. Internet platforms faced a moderate pullback late in the month, and sectors that had rallied on policy and anti-involution hopes (e.g., renewables, metals, and property) saw some pressure as fast money exited.
India was the region’s worst performer in July, correcting 5.00% as the announcement of a 25% US tariff weighed heavily on sentiment. The Nifty delivered its fifth consecutive weekly decline by the end of July, with global and domestic headwinds compounding the impact of a mixed earnings season. Sectoral performance was broadly negative, led by selling in Financials, Banks, and IT services, though Pharmaceuticals and Energy provided some relative support. Foreign flows remained net sellers over the month, while domestic investors were more constructive in consumer stocks. However, economic momentum remained robust, with manufacturing PMI rising to a 16-month high of 59.1 (vs 58.4 in June).2 Services PMI also surged to an 11-month high in July, increasing by 0.1pt to 60.5 thanks to strong international demand and sustained domestic sales.3
Korean equities gained 4.01% in July, buoyed by strong foreign inflows, optimism around AI demand, and progress on the US-Korea trade deal. KOSPI spent much of the month rallying on robust buying in manufacturing and technology, led by names such as Samsung Electronics, which benefited from rotation out of SK Hynix. However, sentiment turned more cautious at month-end as the finalized tariff rate (15%) and new domestic tax concerns prompted profit-taking and a pullback in large-caps. Banks and financials underperformed amid regulatory worries, while shipbuilders and defense names provided relative strength, supported by expectations for increased capex linked to trade agreements. Flows remained net positive for foreigners but were offset by local and retail selling late in the month.
Taiwanese equities advanced 5.62% in July, with the market setting new highs as AI capex upgrades by US hyperscalers and a strong earnings season for TSMC and key supply chain players boosted sentiment. Foreign inflows were focused on large-cap tech names like TSMC, MediaTek, and Hon Hai, while upstream semiconductor and hardware names saw some profit-taking. Despite tariff-related uncertainties (finalized at 20%, though with significant tech exemptions), risk appetite for Taiwan’s AI and electronics complex remained robust.
ASEAN saw mixed performance in July. Thailand staged a remarkable comeback, surging 14.35% after two months of correction, as both local and foreign investors judged that much of the bad news had been priced in. Sectors such as electronics, tourism, and consumer stocks led the rebound, while banks also attracted renewed foreign inflows. Elsewhere in ASEAN, performance was more subdued. The Philippines and Malaysia underperformed, weighed down by regulatory scrutiny (notably in gaming in the Philippines) and muted foreign flows. Indonesia saw some support from late-month foreign buying with sentiment improving after Bank Indonesia’s 25bps rate cut to 5.25%, though the market ultimately finished as a laggard.
At Shikhara, we believe that navigating volatile markets requires discipline, open debate, and a focus on substance over noise. Despite a year marked by headlines and policy shifts, our investment approach remains rooted in research and robust internal discussions. When we look at the portfolio, we feel confident that it is positioned in the right sectors with the most dynamic companies to capitalize on the profound changes happening today. Below, we share some of the key debates shaping our current portfolio positioning and outlook.
No. While it’s common to draw comparisons with the tariff increases during the Roosevelt era in the early 1930s, we believe these analogies oversimplify the issue. The dramatic market collapse during the Great Depression was primarily due to a highly leveraged banking system and a lack of appropriate regulation in both the financial system and capital markets.
The reality is that the globalization experiment arguably went too far, especially with the mercantilist strategies pursued by Japan, Korea, Taiwan, and, most notably in recent years, China. Between 2005 and 2018, it became almost unimaginable how much of the world’s manufacturing was concentrated in China, while the rest of the world effectively levered to buy these goods. This model is unsustainable, especially post the supply disruptions during COVID-19, and with the realization that China is not a close geopolitical ally, global supply chains are being re-evaluated.
Compounding this, job creation in developed markets remains a challenge, and we are on the cusp of significant disruption driven by artificial intelligence and automation. These forces are reshaping the global economic landscape, not destroying it. As we have written over the past 12 months, deglobalization is more a process of rebalancing than a harbinger of collapse. Opportunities will emerge for dynamic companies and investors who can adapt to these changes.
It may seem that way, but what we’re witnessing is a world where the tech sector approach to driving innovation has been adopted in national policymaking. The mantra is to iterate quickly, tolerate failure, and prioritize action over endless deliberation. This is a marked departure from the slower, consensus-driven models of the past.
In China, India, and now increasingly in the US, decision-making is concentrated in the hands of a strong leader and a small circle of trusted advisors. With such concentration, there is limited bandwidth and often little patience for deep, exhaustive debate. Yet, paradoxically, this can allow for rapid course correction when things go off track.
Recent examples abound: India’s sudden demonetization in 2016, global COVID-19 restrictions, China’s restrictions on the tech sector, or the US’s abrupt shifts in industrial policy. These are not always the product of long planning cycles, but rather of leaders willing to experiment, fail fast, and pivot as needed.
While this style of governance can generate headlines about “chaos” or “uncertainty,” it also means governments are not afraid to change their approach when circumstances require. In today’s complex global environment, agility may be as important as foresight.
We do not anticipate a direct conflict between the US and China within the next three years. Strategic realities (such as the US’s current dependence on Chinese rare earths and China’s need for further military development) act as constraints on escalation. Moreover, China faces significant internal challenges: high youth unemployment (now exceeding 25%), and export sectors sensitive to global demand. Recent military engagements have exposed the need for further battleground experience for Chinese equipment.
Beyond the headlines, China’s leadership is grappling with a structural growth dilemma – shifting away from its old, capex-heavy model and rebalancing toward consumption and “quality” growth. Recent policy meetings have revived long-standing reform ambitions, but the system’s deep-rooted incentives for local officials to chase supply-side growth remain hard to change. The upcoming 15th Five-Year Plan will be the real test of Beijing’s willingness to institutionalize consumption-led metrics and fiscal reform. Recent policy signals have been positive, indicating that the focus will be more on “investing in people”, such as through birth and consumption subsidies, and building a unified national market, rather than relying on traditional infrastructure or real estate investment.
Therefore, rather than direct conflict, we expect to see a period of intense strategic competition and innovation between the US and China. An appropriate comparison is the 1950s Sputnik era, where the race to be the first on the moon sparked an innovation boom in the US and the Soviet Union. Today, both the US and China are likely to channel resources into technology and industrial policy as they vie for leadership across critical sectors. This environment may accelerate innovation on both sides, but with competition unfolding in economic, technological, and geopolitical arenas rather than through open conflict.
We see a shift in corporate profitability patterns. Consumer companies that boosted margins by outsourcing to China may now face cost pressures as supply chains diversify and localize. However, advances in AI and automation could mitigate some of these pressures by enabling new productivity gains.
Given a choice, we will be long investment cycle plays, particularly those enabling the reshoring of US manufacturing. We estimate that the US manufacturing will eventually account for 25-30% of domestic consumption. Policy incentives, such as accelerated depreciation from the One Big Beautiful Bill Act (OBBBA), are likely to further support capital investment and potentially lower effective tax rates by 7-13%. OBBBA’s permanent expensing provisions for domestic R&D and equipment are expected to accelerate technology upgrades across the industrial base. Additionally, new auto loan interest deductions and increased standard deductions may stimulate demand for US-made goods.
Recent headlines highlight the growing convergence of political and business interests in this space. High-profile investment vehicles are now explicitly targeting investments in US manufacturing, innovation, and supply chains. This reflects a broader trend: capital is flowing into sectors and companies positioned to benefit from policy-driven reshoring and industrial policy initiatives.
In China, the government’s anti-involution measures are targeting specific firms for predatory pricing and unfair practices, rather than enacting broad-based industry crackdowns. This is part of a broader shift toward quality growth, with policy incentives moving away from traditional sectors and toward consumption, services, and high-value manufacturing. However, risks remain in sectors like autos, where some firms rely heavily on local government bailouts, echoing “too-big-to-fail” dynamics.
This is a “Buy on Dips” market. Unlike the early 2000s or 2008, there’s been no major capital misallocation; in fact, most of the world (outside China) has underinvested since the GFC and is now looking to renew and expand capacity. While there are some pockets of bubbles, they aren’t large enough to trigger a 30% drawdown, though a 5–10% correction could happen at any time, as we estimate one-third of volumes are driven by machines and quant funds.
Importantly, the underlying market signals continue to reinforce our “buy on dips” stance. Since April, we’ve seen a V-shaped recovery in the breadth of positive earnings revisions, with analysts raising estimates across a wide range of sectors. This has been accompanied by a decisive rotation into cyclical stocks, which typically lead in the early stages of a healthy market recovery. The combination of broad-based earnings upgrades and cyclical outperformance is a classic sign of improving fundamentals and investor confidence, not of a late-cycle rally or a market on the verge of a downturn.
Another reason to stay constructive is the sheer age of U.S. capital stock, which now averages over 23 years – the oldest in post-war history. Years of underinvestment have left infrastructure and industry overdue for renewal. This creates a powerful, multi-year tailwind for capital spending, supporting both earnings growth and a broad-based market recovery.
In an era of state capitalism, the traditional boundaries between governments and central banks are increasingly blurred. Today, policymakers in the US, Europe, India, and China are closely coordinating fiscal and monetary responses, often prioritizing national objectives over central bank independence.
This dynamic resembles the pre-1985 Reagan/Thatcher era, when monetary and fiscal authorities worked in tandem to manage economic challenges. The playbook is to inflate out of the debt problem, like in the 1950s. We see this with the European Central Bank (ECB), Reserve Bank of India (RBI), and the People’s Bank of China (PBOC) – all central banks are closely aligned with the respective government’s priorities. Thankfully, AI-driven productivity gains and a surplus of white-collar workers should help contain wage inflation pressures.
Germany’s recent “Made For Germany” initiative provides a compelling case study of state capitalism outside of China or the US. In July 2025, Germany unveiled a EUR 631 billion private sector investment plan, backed by its Chancellor, the CEO of Deutsche Bank, and dozens of leading local and global investors, and explicitly designed to direct capital into national priorities like industrial capacity and defense. This program joins a EUR 500 billion government infrastructure fund and EUR 400 billion in new government debt for defense, all coordinated with the country’s leading banks and savings institutions.
These investments are not just about stimulating domestic growth. They represent an explicit strategy to reduce Germany’s reliance on both Chinese manufacturing and US security guarantees. By channeling capital into expanding local capacity and technological independence, Germany is responding directly to geopolitical risks, such as the weaponization of supply chains and shifting global alliances. The country’s willingness to go at it alone, bypassing slow EU-level coordination, signals a new era in which major economies seek resilience and autonomy, while blurring the lines between public and private sector action.
In a world where growth is uneven and opportunities are scarce, emerging markets reliant on favorable terms of trade may struggle. However, those with strong talent pools like China, India, Korea, Taiwan, and Vietnam are better positioned to succeed.
This is especially true with the AI revolution. For countries to fully capitalize on such transformative technological change, they must combine large, skilled workforces supported by effective education systems, with sophisticated financial markets capable of mobilizing large-scale industrial investment, and robust patent ecosystems to protect and monetize innovation. These elements amplify technological advantages into multi-generational economic leadership. Among EMs, Asia stands out as best positioned on these fronts, having invested heavily in talent, patents, and advanced financial systems, which sets the region apart from its EM peers.
Within Asia, Korea stands out as a more flexible version of Japan. While Koreans admire Japanese culture (especially the cuisine), they are highly competitive and dislike losing to Japan. As both countries face slower growth and aging populations, it’s likely that Korea will follow Japan’s path of corporate reforms. Importantly, Korea’s government debt-to-GDP ratio in 2024 was just 45%, compared to Japan’s 216%, and Korean equity valuations are about 40% lower, with the market remaining significantly under-owned.4
Notably, Korea’s shipbuilding sector is a major pillar of its global competitiveness. Korean yards lead in LNG carriers, advanced container ships, and naval vessels, consistently outpacing European and Japanese rivals through investments in automation and green technology. The ongoing shipbuilding super-cycle, fueled by energy security and defense demand, has given Korean builders some of the world’s largest orderbooks and cemented Korea’s role as a key player in global infrastructure renewal.
Looking ahead, Korea is set to play an increasingly active role in global infrastructure investment, including the rebuilding of America’s power and shipping infrastructure, as well as in global defense spending. The Korean defense industry, originally built to maintain American equipment left after the Korean War, now offers high-quality equipment at 40–50% lower cost than American or European peers, creating significant export opportunities.
In an era of state capitalism, the key risk comes from overconfident, authoritarian leaders who believe they are bigger than the markets. Geopolitical dynamics are especially fluid. The US administration faces its own pressures (e.g., from the ongoing Epstein files to Trump’s shifting support within his core MAGA base), which is creating a desire to gain some “victories” ahead of the mid-term elections next year.
For markets like Korea and Japan, it seems Trump was willing to settle for 15% tariffs. In the case of India, however, the situation has escalated: an initial 25% tariff imposed in July was followed by an additional 25% on August 6th, bringing the total to a striking 50%. The tougher stance seems more to do with political optics, as the additional 25% is on account of India’s purchase of Russian crude. Press reports indicate that India has reduced purchases of Russian crude recently and also speculate on a meeting between President Trump and President Putin in the coming weeks. Separately, there is no question that Modi’s government has delivered real progress – for example, digitization, financial inclusion, and governance reform are meaningful achievements. But there is hope for more reform in his third term. Legal, land, and agricultural reforms, along with greater ease of business, are now urgent.
Our view is that tariff headlines will re-emerge every 12-15 months as the US revisits its trade deficits and pushes for further concessions, whether in the form of increased market access or investments in the US.
Another key risk is the potential for rising bond yields. If uncertainty stemming from the Trump administration undermines US institutions to the extent that investors lose confidence, then capital that was once almost automatically allocated to the US could look for opportunities elsewhere. That kind of outflow puts upward pressure on bond yields and downward pressure on the dollar, making it harder for the Fed to cut rates. The end result is a stickier inflation environment and a structurally higher cost of capital for businesses and consumers alike.
Given this, and contrary to conventional views, we actually consider some softness in economic data as beneficial. Recent signs, such as a slowdown in consumption and weaker labor figures, are welcome, as robust data often emboldens policymakers to take more aggressive, and potentially disruptive, actions. Softer data serves as a reminder of economic fragility and helps temper the risk of overreach, especially in the context of escalating tariffs.
On the market side, however, underlying conditions remain robust. With earnings breadth improving and cyclicals outperforming defensives, recent market signals point to continued resilience. Meanwhile, our conversations with corporates confirm a significant commitment to capital expenditure, particularly in the US, where hyperscalers are driving demand. The key constraint for this capex is energy availability, with companies willing to pay higher prices to secure it. Once corporates commit to capacity, utilities follow suit. The US’s time-bound incentives, such as those in the “Big Beautiful Bill,” further encourage this investment. From an AI perspective, rapid capital deployment is necessary, and the government appears focused on removing bureaucratic hurdles to accelerate these trends. This alignment of sovereign priorities, corporate investment, and infrastructure buildout is what keeps us bullish on the new investment cycle.
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This material is prepared by Shikhara Investment Management LP (“Shikhara”). This material does not constitute an offer to sell or the solicitation of an offer to buy in any state of the United States or other U.S. or non-U.S. jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such state or jurisdiction.
Investment involves risk. Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the investment product will generate a return, and there may be circumstances where no return is generated. Investors could lose all or a substantial portion of any investment made. Before making any investment decision, investors should read the Private Placement Memorandum for details and the risk factors. Investors should ensure they fully understand the risks associated with the investment product and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Shikhara’s investment products are suitable only for sophisticated investors and require the financial ability and willingness to accept the high risks and lack of liquidity inherent in Shikhara’s investment products. Prospective investors must be prepared to bear such risks for an indefinite period of time. No assurance can be given that the investment objectives of any given investment product will be achieved or that investors will receive a return of their investment.
Certain of the information contained in this material are statements of future expectations and other forward-looking statements. Views, opinions, and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements.
Certain information contained in this material is compiled from third-party sources. The information and any opinions contained in this document have been obtained from sources that Shikhara considers reliable, but Shikhara does not represent that such information and opinions are accurate or complete, and thus should not be relied upon as such. Furthermore, all opinions are current only as of the date of distribution and are subject to change without notice. Shikhara does not have any obligation to provide revised opinions in the event of changed circumstances. Whereas Shikhara has, to the best of its endeavor, ensured that such information is accurate, complete, and up-to-date, and has taken care in accurately reproducing the information, Shikhara takes no responsibility for the accidental publication of incorrect information, nor for investment decisions taken based on this material. Neither Shikhara nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein should be relied upon as a promise or representation as to past or future performance of any investment product or any other entity.
The MSCI AC Asia ex Japan Index captures large and mid-cap representation across Developed Markets (DM) countries (excluding Japan) and Emerging Markets (EM) countries in Asia. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI China Index captures large and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips, and foreign listings (e.g. ADRs). The index covers about 85% of the Chinese equity universe.
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Shikhara Investment Management LP is currently an Exempt Reporting Adviser that is exempt from registration as an investment adviser with the U.S. Securities and Exchange Commission and Shikhara Capital (Hong Kong) Private Limited has been approved by the Hong Kong Securities and Futures Commission. This website does not constitute an offer to sell or the solicitation of an offer to buy in any state of the United States or other U.S. or non-U.S. jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such state or jurisdiction.
Investment involves risk. Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the investment product will generate a return and there may be circumstances where no return is generated. Investors could lose all or a substantial portion of any investment made. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the investment product and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Shikhara’s investment products are suitable only for sophisticated investors and require the financial ability and willingness to accept the high risks and lack of liquidity inherent in Shikhara’s investment products. Prospective investors must be prepared to bear such risks for an indefinite period of time. No assurance can be given that the investment objectives of any given investment product will be achieved or that investors will receive a return of their investment.
Certain of the information contained in this website are statements of future expectations and other forward-looking statements. Views, opinions, and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance, or events may differ materially from those in such statements.
Certain information contained in this website is compiled from third-party sources. Whereas Shikhara Investment Management has, to the best of its endeavor, ensured that such information is accurate, complete, and up-to-date, and has taken care in accurately reproducing the information, Shikhara Investment Management takes no responsibility for the accidental publication of incorrect information, nor for investment decisions taken based on this website. Neither Shikhara Investment Management nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein should be relied upon as a promise or representation as to past or future performance of any investment product or any other entity.
The contents of this website are prepared and maintained by Shikhara Investment Management and has not been reviewed by the Securities and Exchange Commission of the United States or the Securities and Futures Commission of Hong Kong.
The Shikhara logo and name are trademarks of Shikhara Investment Management LP, registered in Hong Kong, the People’s Republic of China (PRC), Australia, the United Kingdom, the European Union, and the United States.