Asia’s emerging market equities have been hurt by recent fears over China’s recovery and geopolitical risks. But while the region’s markets have historically been correlated with Chinese assets, investors are missing a stealthy decoupling from the country’s giant economy. Tailwinds from supply chain shifts, favourable demographics and resilient economic fundamentals are set to support long-term gains in Asia emerging markets, despite China’s risks.
First, global companies are actively tilting supply chains beyond China, resulting in business and investment flows to its regional neighbours.
Apple’s recent move to diversify iPhone production from China to India is the most striking example. According to the IMF, China’s global market share of greenfield foreign direct investments in strategic sectors, such as semiconductors, has been declining since 2021, while the market share of the rest of Asia has risen. In the US, the percentage share of imports from China has been falling since 2018 and is set to be overtaken by imports from India, Taiwan and Asean economies.