AI bubble fears and policy splits loom over Asia stocks

Asian equities kicked off 2026 with sharp gains, but the advance may face headwinds from worries over an artificial intelligence (AI) bubble and diverging interest rate paths across the region.

- 

Asia's deep ties to the global AI supply chain leave it exposed to any sharp reversal on Wall Street, even as cheaper valuations for Chinese chipmakers and Beijing's push for technological self-sufficiency offer some buffer. The sector is firmly in investors' sights after MSCI's Asia stock index beat global peers by nearly five percentage points in 2025, its strongest relative showing since 2017.

Policy divergence will be another key driver, with growth-focused stances in China and India contrasting with a bias towards curbing inflation in Japan, Australia and New Zealand.

Meanwhile, a rotation may emerge into laggards seen as better shielded from external shocks.

South Korea — 2025's standout — may extend gains if market reform momentum holds.

Here are the five areas of focus for Asia equity investors in 2026:

AI CRAZE

The investment frenzy over AI played a key role in driving Asian stocks' outperformance versus their global peers in 2025.

While some see Asia as a better venue for AI exposure given cheaper valuations, others point to the more pronounced risk of concentration of a few major tech firms in markets such as Taiwan and South Korea. Volatility may increase as the rally extends.