Financial plays make ‘genuine improvement’ in Asia equity markets alongside tech, AI counters: JPMorgan
The analysts add, however, that the tech sector outperformed in August and in the month to date for September
[SINGAPORE] Financials are among the best hedges for investors in Asian equity markets as at the third quarter of this year, with the sector emerging as the “only pocket of genuine improvement” in the market in the past two months, a Sep 13 report by JPMorgan has said.
While the technology sector took the “overwhelming lead” in the earlier part of the year, financials – comprising large banks, insurance companies and wealth-management firms – moved to the front in the second quarter of the year, followed by defensive and cyclical sectors.
Since then, both cyclicals and defensives have lost momentum in Asia, even as financials continue to do well.
Amid a “subdued” risk appetite among investors from now until late October, the analysts expect financials in markets like North Asia and Singapore to remain in favour.
The financial sector in South Korea, in particular, is expected to benefit from a combination of higher rates/return-on-equity, rising payouts, wealth effect from incomes, and liquidity from corporate conversion.
Why financials stay on top
The analysts noted that the rotation from popular tech plays into cyclicals or defensives has been “more tactical than (long-lasting)”.
They said that amid longer-run earnings growth, staples, discretionary, healthcare, communication services and utilities continue to have a “muted, mean-reverting” profile – contrary to the sustained “broadening” in financials.
This comes amid a recent call for a slowdown in AI development by leading chipmakers and executives in US AI companies, which raised safety and production concerns.
Share prices of global AI-linked stocks such as Nvidia and Advanced Micro Devices have declined significantly since then.
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Their base/bull/bear cases for the MSCI AC Asia ex-Japan Index for mid-2027 thus stay at 1,400/1,600/1,000, with tech/AI and financials forming two sides of the “recommended barbell allocation”.
Tech sector strength in Asia
The JPMorgan report indicated that despite competitive strength in financials, Asia tech plays will not be backing down in 2026.
It said: “Tech is again seeing more stocks break above a 50-day moving average, while remaining stronger on 200-day moving average trends.”
A daily moving average is an indicator which tracks the average closing price of a security, stock or index over a specific number of trading days.
The analysts added that the tech sector – and Korea and Taiwan, among markets – outperformed in August and in the month to date for September.
Nvidia’s revenue growth outlook stood at about 70 per cent for FY2028, implying a stronger data-centre capex growth than consensus expectations of 40 to 50 per cent.
TSMC, the world’s largest contract manufacturer of semiconductor computer chips, indicated rising confidence in the growth and sustainability of AI demand, with visibility now extending into 2029 to 2030, based on customer product roadmaps involving hyperscalers and AI labs.
“Memory demand appears resilient, too, despite concerns around ‘despeccing’, and memory makers delivered constructive messaging around extended tightness – supporting elevated pricing and smoother long-term agreements that help reduce cyclicality,” the analysts wrote on Sunday.
The term “despeccing” refers to intentionally lowering technical specifications or removing non-essential elements of a product to save money, lower retail pricing, or cope with supply-chain shortages.
The analysts concluded by noting that for most of 2026, the concentration of earnings in the tech/AI complex is “a trade to embrace”.
