JPMorgan: Asia Pacific 2025 Wrap – EM outperforms DM, AI, governance, and trade uncertainty are key themes
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The Asia Pacific region delivered robust performance in 2025, with the MSCI Asia Pacific Index rising 28.7% and the MSCI Asia Pacific ex-Japan Index gaining 33.0%, marking the best annual returns since 2017 and significantly outpacing the US (+17.7%). Artificial Intelligence (AI) remained the dominant market narrative for the third consecutive year, driving exceptional gains in South Korea (+100.7%), Taiwan (+39.9%), and the IT sector (+49.0%). In contrast, India (+4.2%) and ASEAN (+17.0%) lagged behind, with India recording its first underperformance in four years.
Beyond AI, two other critical themes shaped the landscape: trade uncertainty and corporate governance reforms. Trade volatility, particularly the tariff shock from the April "Liberation Day" announcements, created short-term turbulence, though its impact diminished by year-end. Simultaneously, governance reforms in Japan, South Korea, Singapore, and Thailand facilitated valuation re-ratings, contributing to the region's outperformance against developed markets.
Market dynamics were mixed in December. While US tech stocks rallied on strong Micron guidance, China underperformed due to weak macroeconomic data and limited policy support. Foreign capital flowed out of Asia throughout the year, with only South Korea and Indonesia shifting to net inflows in H2 2025. Valuation analysis reveals that while most markets remain near historical averages, South Korea and ASEAN offer attractive relative valuations. Earnings estimates were revised upward significantly for South Korea (driven by IT) and Japan (broader sector coverage), whereas China's consumer sector faced further downgrades.