Asian equities: A silver lining in the tariff fog

In brief

• 4Q earnings releases are tracking mildly positive for Asian equities, with strong momentum in Japan and mixed results in India and Korea.
• Broader consumer application of AI and domestic improvements, from fiscal and monetary measures to corporate governance reforms, should support Asian equities ahead.
• Running at a similar level of earnings expansion to the U.S. but at cheaper valuation comparable to Europe, Asian equities pose an attractive case for portfolios. Dispersion of outcome within markets and securities will remain wide, prompting a need to stay active.

After a volatile start to the year, Asian equities have surged since mid-January, driven by softer-than-expected U.S. tariffs on China and renewed artificial intelligence (AI) optimism in the region. However, earnings revisions have been relatively subdued compared to the positive price reaction. Previously, we have noted that domestic demand will be key in driving Asian growth and equities outperformance ahead. So, as markets wait for better visibility in tariff policies and external uncertainties, we look at Asian equities’ earnings performance so far and discuss the fundamental and domestic outlook ahead.

Off to a good start

Two-thirds of the MSCI AC Asia index’s market cap have reported 4Q earnings. Overall, results are mildly positive, with our earnings tracker¹ projecting 4Q earnings growth of 9.4% year-over-year (y/y) and a 32%-to-29% beat-miss ratio against consensus estimates. Tracking earnings across multiple Asian markets presents its own challenges given varying reporting standards. However, there are some notable trends across the larger market segments where the bulk of companies have reported:

• Japan has shown upbeat results (90% of market cap reported, with 4Q earnings growth tracking at 13% y/y). Resilient demand for AI, datacenters and tech services, along with a weak Japanese yen (JPY) over the prior quarter, have supported sales growth. Improved cost pass-through and operational efficiencies have also contributed to margin growth. Notably, share buybacks have significantly increased. The JPY 16.5trillion in buybacks already announced in this fiscal year is nearly double the amount from last year and is already 60% above the last fiscal year's total. More companies are also planning to raise dividends this year, further improving shareholder returns and underscoring a continuation of the multi-year corporate governance reforms.
• In India, results were mixed (over 95% market cap reported, with 4Q earnings growth tracking at 12% y/y). Particularly in financials, asset quality has been a strong focus this earnings season due to concerns on over-leveraging and rising delinquencies. 4Q results have somewhat alleviated these concerns, with leading banks seeing fewer non-performing loans and contained slippages. 
• While higher household leverage, falling savings and resilient retail spending could pose medium-term issues for lenders, earnings commentary suggests delinquencies are peaking. Nevertheless, leading banks reported solid growth in net interest income despite lower net interest margins, which is a positive for the sector.
• Korean earnings, despite still seeing strong growth, have missed the elevated expectations (89% of market cap reported, with 4Q earnings tracking at 44% y/y). Expectations were high for tech/memory companies, particularly regarding margins in the HBM (high bandwidth memory) space. Although some larger companies missed headline results, the disappointment was mainly due to higher-than-expected one-off R&D expenses while HBM sales held up against consensus estimates. However, pricing competition in the conventional DRAM (dynamic random access memory) space remains fierce, accelerating the race to shift revenue mix towards HBM. 

A lower share of companies have reported across other major markets, but in aggregate, there is a wide dispersion between actual and consensus estimates. This is partly due to low analyst coverage, thus resulting in less informed estimates and more opportunities to exploit market inefficiency. Nonetheless, the holistic picture shows that there are more companies with better-than-estimated earnings than those with worse-than-estimated earnings.

Domestic improvements to support earnings expansion

Looking ahead, Asian equity earnings are estimated to grow 11.0% in 2025 and 11.8% in 2026 (Exhibit 1). Tech-heavy markets are again setting high expectations. With DeepSeek’s R1 model release significantly lowering the cost of inference, Edge AI adoption would be accelerated, leading to increased semiconductor demand and upside demand to conventional DRAM, a positive driver for semiconductor enablers and memory names, which are abundant in Asian markets. Broader consumer application of AI could also benefit software and e-commerce platform names.

Exhibit 1: Mixed basket of earnings growth and valuation
2025 earnings growth estimate, forward P/E ratio

Source: FactSet, MSCI, J.P. Morgan Asset Management calculations. Based on respective MSCI indices, except U.S. which is the S&P 500 index. Data reflect most recently available as of 14/02/25.

In China, as we await earnings releases for the quarter (consensus expects 5.1% y/y growth in 4Q), the government’s stimulus measures are starting to gain traction in lifting consumer confidence and domestic demand. Early indicators of the Lunar New Year holiday spending point to increased consumption activity, especially in government-subsidized areas, such as home electrical appliances through the trade-in program.

High expectations were also placed on India. On the fiscal side, the government’s announcement to cut tax should help stressed urban middle-class households, supporting consumption activity. The central bank’s pivot to ease monetary policy will also add support. Market pricing implies three more cuts this calendar year, as food inflation pressure should ease from a favorable crop harvest season and positive monsoon outlook. That said, Indian equity valuations remain elevated, particularly in the small mid cap space, despite the recent consolidation.

Beyond fundamentals, Japan and Korea have embarked on corporate reforms to encourage companies to improve their low valuations and corporate values. From independent board majority to cross-shareholding and many other measures, both markets have seen notable improvements in recent years, positively impacting shareholders’ rights.

Investment implications

Given the favorable factors outlined above, Asian equities remain at an undemanding valuation of 13.4x forward price-to-earnings (P/E ) ratio, a 9.7% discount to its long-run 25-year average. This market shines especially when compared to other developed markets, running a similar level of earnings growth to the U.S., (12.5% earnings growth in 2025 at 22.0x forward P/E) but at valuations comparable to Europe (7.4% earnings growth in 2025 at 14.2x forward P/E). A potential reason for this is the lack of visibility surrounding the looming risk of U.S. tariffs. While the Asian region is generally reliant on export demand, there are still numerous domestically driven investment opportunities (Exhibit 2). 

Exhibit 2: Many are more reliant on domestic markets for revenue
Revenue exposure of MSCI indices

Source: FactSet, MSCI, J.P. Morgan Asset Management calculations.
Data reflect most recently available as of 14/02/25.

Differentiating markets and companies that are more defensive to tariff risks will help investors weather through potential policy uncertainties. More broadly, the region may benefit from the tailwind of AI advancement, improving corporate governance and reasonable valuations. We believe a research-driven approach focusing on company fundamentals will continue to be rewarded in the market, prompting the need for investors to stay active. 

¹Estimates based on FactSet consensus data. Analysis include only quarterly reporting companies only (approx. 80%). Index-level figures are in USD terms based on quarter-end exchange rates, while regional market figures are in local currency terms. Aggregate figures are based on a blend of actual earnings for reported names and estimated earnings for others, unless otherwise stated. Beat/miss ratios are based on a 5% margin. Data reflect most recently available as of 14/02/25.

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