Emerging Asia lures capital while geopolitics shakes the risk mood

Emerging Asia is attracting new demand as a relative refuge from geopolitical uncertainty elsewhere, even as some immediate risks have diminished. US President Donald Trump’s decision to suspend tariff threats against Europe over Greenland has calmed markets for the time being. As concerns about tensions in the Middle East and US actions in Latin America continue, investors are moving to markets that offer better risk-adjusted returns and fundamentals.This shift adds to a strong start for Asian assets. Inflows into North and Southeast Asian stocks have reached $3.3 billion so far in January, according to Bloomberg data, forecasting the largest monthly inflows since September. In the week ending January 16, another $7.15 billion flowed into emerging markets ETFs, three-quarters of which went to Asia-focused funds. Bond markets in Thailand, Indonesia, South Korea and India rallied $3.7 billion this month.

“Emerging Asia is positioned to outperform broader emerging markets this year, even amid heightened geopolitical uncertainty,” said Ray Sharma-Ong, deputy global head of multi-asset custom solutions at Aberdeen Investments. This points to strengths “that are unique to Asia or much more developed,” including AI spending, stable credit conditions and China’s anchoring role.Aberdeen has recently increased its exposure to emerging Asia, expecting South Korean and Taiwanese stocks to benefit from AI spending.

Emerging market stocks and currencies are off to a stormy start to 2026 as tensions between the US and Europe weigh on the dollar and revive diversification flows around the world. Latin American stocks were among the top gainers thanks to higher commodity prices. Pressure on the dollar on Monday, driven by rising relegation concerns, sent the ringgit to its strongest level since 2018, while the won hit a three-week high.

That contrasts with developing Asia, where investors are betting on AI profit-led outperformance in the coming year. Technology-related stocks remain a key driver, while a firmer yuan and robust Chinese exports are expected to support regional trade.

Asian markets also help investors spread their risks, as the region moves less in sync with the US or Europe. Even as the Cboe Volatility Index or VIX – Wall Street’s fear gauge – rose to a two-month high last week, emerging Asian stocks are up about 6.5% so far this year, outpacing the 1.9% gain in the MSCI World Index. This outperformance is supported by stronger earnings growth expectations. According to data compiled by Bloomberg, headline earnings per share for companies in emerging Asia’s stock indices will rise 30% over the next 12 months. That compares with forecasts of a 17% gain for Latin American stocks and 29% for emerging Eastern Europe.

“Asia represents this diversification area, with good earnings prospects,” said Sophie Huynh, portfolio manager at BNP Paribas Asset Management. “The correlation of Chinese equities with the rest of the equity complex is low, or lower compared to pre-Covid.”

Much of the support for Asia comes from China, which exerts outsized influence in the region. Despite the pressure on the local economy, exports have accelerated, creating a record trade surplus of $1.2 trillion.

Data underlines that role. Close trading ties with China mean the yuan anchors the regional currency, with correlations of 0.50 or higher against the baht, ringgit and Korean won over the past five years. A correlation of one means the assets move together.

“The yuan is an anchor for regional currency stability” and is expected to gradually appreciate as the trade surplus grows, said Leonard Kwan, portfolio manager of the T. Rowe Price Dynamic Emerging Markets Bond Strategy.