From the CIO’s Desk – Asia Insights November 2025

November reminded investors that volatility is the price of admission. Yet beneath the turbulence of carry trade unwinds, liquidity squeezes, and private credit jitters, a more constructive picture is emerging. This month, we unpack the technical drivers behind the sell-off, explore how state-led innovation is reshaping global competition, and explain why Asian equities remain compelling. As monetary easing broadens and policy uncertainty fades, the case for Asia continues to strengthen.

Market Review

The MSCI All Country Asia Ex-Japan Index fell 2.83% (in USD terms¹) over the month of November. Relative to the rest of the region, Hong Kong and the Philippines were the top performers, while South Korea and Taiwan were the laggards. Sector-wise, Energy and Financials led performance, while IT and Consumer Discretionary were the worst performers.

MSCI China declined 2.50% in November, consolidating further after October’s pullback. The month saw a sharp reversal in sentiment towards AI and technology stocks globally, with concerns over stretched valuations weighing on the market. China’s October economic data was mixed, with industrial production expanding 4.9% y/y (a slowdown from September’s 6.5% but showing steady growth in high-tech sectors) and retail sales rising 2.9% y/y (in line with expectations), while fixed asset investment contracted 1.7% y/y for the first 10 months of 2025. CPI inflation turned positive at 0.2% y/y in October, ending a period of deflation, driven by holiday demand for services like travel and food. The official manufacturing Purchasing Manager’s Index (PMI) improved modestly to 49.2 in November (vs 49.0 in October), partly reflecting relief from the US-China trade agreement reached in late October, which lowered fentanyl-related tariffs and suspended port fees and other trade restrictions.

Indian equities edged up 0.89% in November, extending their recovery for the third consecutive month. The highlight of the month was the release of Q2 FY26 GDP data, which came in at a stronger-than-expected 8.2% y/y, recording the fastest pace in six quarters and well above the RBI’s projection of 7%. Manufacturing expanded 9.1% and services rose 9.2%, while private final consumption expenditure (PFCE) grew 7.9%, supported by income tax cuts and robust rural demand. The Nifty 50 and Sensex quietly hit fresh all-time highs during the month, driven by optimism around domestic consumption recovery and expectations for a 25bp RBI rate cut in December (which was confirmed on 5 December). However, gains were capped by foreign outflows and Rupee weakness, with the Indian Rupee hitting record lows above 89 against the US dollar.

Korean equities tumbled 7.88% in November, giving back a significant portion of October’s gains as the global AI valuation reassessment hit semiconductor names hard. The KOSPI, which had hit record highs above 4,100 in October, fell sharply mid-month as foreign investors pulled approximately USD 5 billion from the market in the first week of November alone, reversing the USD 4.2 billion in inflows from the prior month. Samsung Electronics and SK Hynix bore the brunt of the selling, as concerns over stretched AI valuations and reports of memory chip buyers diversifying towards Chinese suppliers weighed on sentiment. However, markets stabilized in the latter half of the month as sentiment improved, with the KOSPI recovering towards 4,000 as expectations for Fed rate cuts and continued AI demand provided support.

Taiwanese equities declined 5.01% in November, as the global reassessment of AI valuations spilled over into the market and TSMC. The selloff was exacerbated by concerns over whether AI infrastructure spending would generate sufficient near-term returns. However, markets recovered somewhat in late November as expectations for a December Fed rate cut gained traction and Nvidia’s strong earnings reaffirmed confidence in AI demand.

ASEAN equities posted mixed results in November, with the Philippines (+2.22%) and Malaysia (+1.21%) leading, while Thailand (-2.41%) lagged. Thailand underperformed on continued foreign outflows, weak economic data, and political uncertainty. Elsewhere, Indonesia gained 1.14% as the JCI reached fresh all-time highs above 8,300, supported by Indonesia’s GDP growth of 5.04% y/y in Q3, resilient domestic consumption, and strong IPO activity. Singaporean equities rose marginally in November (+0.29%), with the STI also hitting all-time highs during the month, supported by local banks, rate cut expectations, and MAS-SGX reform initiatives aimed at revitalizing the equity market.

Portfolio Commentary & Outlook

Buyers on dips: Navigating volatility with conviction

November’s market turbulence tested investor resolve across global risk assets, but we view these periodic corrections as healthy recalibrations rather than harbingers of systemic distress. While pinpointing a single catalyst is difficult, the sell-off appears driven by a confluence of technical and liquidity factors:

1. Partial unwinding of the Japanese yen carry trade: The yen carry trade experienced unwinding pressure as Japanese bond yields climbed, and the Bank of Japan maintained its divergent policy path from other major central banks. This dynamic likely impacted momentum stocks and AI-related equities, which had been favorite destinations for Yen-funded investments.
2. Liquidity constraints from the US government shutdown: The 41-day US government shutdown drained significant liquidity from markets through the Treasury General Account, which swelled from USD 800 billion pre-shutdown to over USD 1 trillion². This liquidity vacuum created funding stress across risk assets, with money effectively removed from the private financial system and unavailable for lending or investment. The absence of key economic data releases during the shutdown further depressed market volatility measures while creating uncertainty about the true state of the economy.
3. Emerging concerns within the private credit market: Recent high-profile defaults (e.g. First Brands and Tricolor Holdings), concerns on softer underwriting standards, and rising redemption pressures in semi-liquid private credit vehicles heightened worries about hidden leverage and asset-liability mismatches. These stresses raised the risk of forced selling and contributed to broader risk aversion, particularly in assets sensitive to liquidity conditions. That said, aggregate default rates remain on a downward trajectory, suggesting these high-profile cases are idiosyncratic rather than signaling the start of a systemic credit cycle deterioration.

While unsettling in the near term, we think these developments represent the kind of course corrections that maintain market discipline and prevent excessive speculation. Central banks (e.g. US Federal Reserve and Bank of Japan) have demonstrated coordination capabilities during past carry trade unwinds. Moreover, sovereign risk in developed markets, while elevated, does not present an immediate threat despite bond yields trending higher.

Instead, there are three key factors that lead us to remain positive:

1. Easing monetary policy: The Federal Reserve is widely expected to deliver a 25-basis-point rate cut at its December 9-10 meeting. Lower borrowing costs should support risk assets by reducing the cost of capital and providing relief to rate-sensitive sectors.

   Importantly, the easing cycle is broadening globally. Falling global rates typically weaken the US dollar, ease external financing conditions, and redirect capital toward regions with stronger growth differentials. Emerging markets, particularly in Asia, stand to benefit from lower funding costs, improved currency stability, and greater policy flexibility, creating a supportive backdrop for corporate earnings and equity performance.

2. Policy stimulus broadening – A new era of state-led innovation: Governments globally are turning highly proactive – from industrial policy to AI-driven productivity agendas – reigniting business confidence and investment appetite is top on the agenda. In the US, the One Big Beautiful Bill Act (signed on July 4, 2025), delivers immediate fiscal stimulus through extended tax cuts, expanded child tax credits, and new deductions for tips and overtime. The Congressional Budget Office (CBO) estimates USD 4.1 trillion in deficit impact over the next decade, with tax relief taking effect immediately while spending cuts are deferred until after the 2026 midterms.³ This sequencing is deliberate: voters see benefits now, while fiscal consolidation comes later.

   More significantly, the administration has recently launched the Genesis Mission (described as “comparable in urgency and ambition to the Manhattan Project”) to harness AI for scientific discovery.⁴ The initiative will mobilize the Department of Energy’s 17 National Laboratories, industry, and academia to build an integrated AI platform drawing on federal scientific datasets to train foundation models and accelerate breakthroughs in biotechnology, nuclear fusion, quantum computing, semiconductors, and space exploration.

   Japan is pursuing a parallel strategy. The government is set to designate six fields (including AI, nuclear fusion, biotechnology, quantum technology, space, and semiconductors) as “national strategic technologies”, prioritizing them for research funding and preferential tax treatment. Japan’s Fusion Energy Innovation Strategy has been updated to target electricity generation from fusion by the 2030s, advancing its original 2050 goal. The US-Japan Technology Prosperity Deal signed in October 2025 further deepens collaboration on AI, fusion energy, and space exploration.

   Meanwhile, China’s state-led innovation drive is already yielding visible results. The country granted over 1 million new patents in 2024, over 3 times more than the US and underscoring how rapidly the global innovation balance is shifting.⁵

   Chart. The gap between annual patents issued in China vs the US continues to widen

   

   Source: WIPO IP Stats & Data, Jefferies, December 2025

   This reminds us of the Sputnik era, when superpower competition led to unprecedented innovation. That period spawned the invention of the internet (ARPANET), GPS, integrated circuits and advanced computing, and satellite communications. When great powers compete technologically with strategic funding, innovations extend far beyond military purposes to profound commercial and consumer applications.

3. Stabilizing US policy backdrop: In the run-up to next year’s mid-terms, we think that the US administration will take a more pragmatic policy approach. Inflation remains the single biggest issue for US voters, as evidenced by Democratic gains in Virginia, New Jersey, and other November races.

   The administration has tacitly acknowledged this, rolling back tariffs on over 200 food products (including beef, coffee, and tropical fruits) in mid-November, alongside tariff reductions from trade framework agreements with Ecuador, Guatemala, El Salvador, Argentina, and Switzerland. The Congressional Budget Office (CBO) estimates that more than one-third of imports are now unaffected by tariff rate increases.⁶ US-China relations have also shown meaningful improvement following the Trump-Xi summit in South Korea on October 30th, with the resulting trade framework including significant de-escalation measures.

   So, with the 2026 midterms approaching, we think it’s in US policymakers’ interest to iron out supply chain issues and bring inflation under control, which in turn creates space for the Fed to continue easing. As tariff uncertainty recedes, business confidence should improve, and deferred investment plans will resume.

Crucially, from an Asia perspective, Asian equities remain well-positioned to capture these tailwinds. The Asia ex-Japan earnings revision ratio reached 1.05 in October (its highest level in over four years) with EPS forward guidance broadening and accelerating. Yet despite these improving fundamentals, the region trades at a 25% discount to global peers. While relative valuations alone are not a catalyst for rotation, this combination of strengthening earnings momentum and attractive pricing presents a compelling case for continued foreign inflows into Asian markets.

Chart. Asia Pacific ex-Japan prospective P/E is trading at a 25% discount relative to the world

Source: BofA Asia Pac Quantitative Strategy, MSCI, IBES, Worldscope, December 2025

AI commercialization: From hype to reality

Of course, we also must address November’s AI-driven volatility. The correction reflected legitimate concerns about valuation and capital intensity, but beneath the volatility, real commercialization is accelerating. Tencent’s Q3 2025 results provided one of the first detailed quantification of AI’s economic impact we’ve observed from a major platform. The company reported that that AI-powered ad targeting contributed roughly half of the 21% y/y growth in marketing services revenue.⁷

This matters because it validates the investment thesis that has driven capital expenditure across the sector. Yes, AI infrastructure requires enormous upfront investment. But as corporates like Tencent begin quantifying returns, the path to positive ROI becomes clearer, leading to greater mass adoption.

As we mentioned in last month’s note about the AI infrastructure buildout, not all participants will earn compelling returns. The risk sits with high-capex builders lacking scale advantages, ecosystem integration, or clear monetization pathways. Instead, where we see sustainable value creation accruing is at the corporate level, in 1) companies successfully integrating AI into customer-facing products that drive top-line growth, and 2) companies achieving measurable operational efficiencies that improve margins. The evidence of the AI value creation is only just beginning to show.

Our investment approach – bringing the macro to bottom-up stock picking

Our investment approach is deliberately unconstrained, spanning the growth-value spectrum to capture the best opportunities in Asian markets. While we focus on innovative, high-growth companies, we equally pursue deep value situations where competitive dynamics are evolving in growth opportunities.

KEPCO, Korea’s state-owned utility monopoly, illustrates both this philosophy and how we think differently about global themes. The company has been forced to sell electricity below cost due to government price controls – a politically driven subsidy model similar to China’s energy sector. However, with stable demand and the government gradually raising tariffs to restore financial viability, we see significant upside as this essential infrastructure provider returns to profitability. More importantly, KEPCO exemplifies our conviction that a healthy, profitable utility sector is the crux of any reindustrialization theme. Korea’s industrial base (including shipbuilding, defense, advanced manufacturing) cannot expand without reliable, economically sustainable power infrastructure.

As the world embraces the reindustrialization narrative, particularly in the US and Europe, we believe Korea stands as the biggest beneficiary in Asia. The country possesses the industrial capacity, supply chain integration, and technological expertise to capitalize on this shift. This is how we look at the world differently: connecting macro themes and perspectives from multiple geographic locations to mispriced, essential assets that other investors may overlook.

Outside of Korea, China remains a key portfolio weight, though we have reduced exposure in names that performed well this year. While US-China relations have stabilized somewhat, domestic growth recovery will be gradual, characterized by a K-shaped consumption pattern. We are therefore focusing on businesses that are both globally competitive and operate in sectors with limited domestic competitive intensity, i.e. companies that can thrive regardless of China’s internal dynamics.

With reduced China exposure, we have been adding to India, where we see a compelling competitive evolution unfolding. Leading Indian industrials have spent the past decade developing international customer relationships while simultaneously upgrading product quality and manufacturing processes. This dual capability of global market access combined with operational excellence is now enabling these companies to expand into adjacent, higher-value segments. For example, auto parts suppliers are leveraging their proven manufacturing capabilities to enter aerospace components, demonstrating the export optionality that makes Indian industrials increasingly attractive. This represents exactly the type of structural upgrade story we seek: companies transcending their domestic origins and expanding their market to become global competitors.