What were the most significant developments in the market in the first half of this year?

Asia ex-Japan delivered one of the best semi-annual periods on record, up +24% in 1H 2026, and this strong performance was mostly driven by technology stocks, led by Taiwan and Korea.

We came into the year constructive, but we were still floored by the speed and ferocity of the AI hardware rally. The market is increasingly recognising that Asia provides more than just advanced foundry; it is an exporter of high-value components across a tightly linked ecosystem. As tech content becomes more intricate, there is a real advantage to having key parts of the supply chain physically co-located. With some component shortages likely to linger, and AI’s impact extending further into the physical world, Asia’s role becomes even more central. Technology is already around 40% of the Asia index. We think it can go higher, but the path from here is likely bumpier.

What are the best opportunities in Asia ex-Japan equities?

Our equity positioning is anchored in the structural AI trend. Within this, we are constructive on AI infrastructure and AI application-related stocks, which stand to benefit from long-term AI-driven growth. These areas have been more overlooked than headline semiconductor names, so valuations remain relatively reasonable.

We also favour financial stocks, particularly insurance companies across Hong Kong, Korea and Australia, supported by attractive valuations and share buybacks that can improve shareholder returns. We like general insurance companies that are non-discretionary in nature and have the pricing power to pass-through inflationary pressures.

In addition to insurance, we also like Hong Kong, Korea and Indian banks. The combination of stronger loan growth, net interest margins (NIMs) troughing and benign asset quality is constructive for banks. Inflation levels are not yet a concern across most of Asia, so real growth driven rate hikes is a good set up for banks.

We are overweight regional telcos which provide a combination of defensiveness and attractive growth. For example, the Australian telecom industry is dominated by two major operators that have been disciplined in monetising rising mobile data usage, while also keeping costs in check.

What are the biggest risks to the asset class?

The market breadth has been very concentrated. While this is not a timing signal, it is never ideal for performance to rest on a one-legged stool.  That said, on the ground we are seeing activity broaden out as AI benefits are translation into infrastructure build out and upgrades in the physical workflows; we are seeing this in the form of higher loan growth and a pickup in domestic capex cycle.

Volatility remains a key risk for the asset class, but the fund can help harness this higher volatility and convert it into income. Year-to-date, we’ve delivered about 11% annualised income in our higher income strategy.

In select parts of technology, expectations have become too buoyant. Supply shortages are driving unprecedented profitability, so investors need to assess the sustainability of high margins and returns on investment, making stock selection within tech especially important.

Stickier inflation could keep Fed rates higher for longer, weighing on Asian equities, especially long duration stocks like bond proxies.  As a result, our portfolio is adding exposures to overweight rate rise beneficiaries such as banks.

Geopolitical uncertainty is another risk because most Asian economies are net oil importers and have been exposed to higher oil prices and supply disruptions. While immediate conflict risks have moderated, a geopolitical risk premium is likely to persist.

 What are the key features of your investment process?

We evaluate stocks using three core pillars: fundamentals, valuations, and risk management.

Our approach to equity income investing in Asia has always been to balance between three complementary exposures: 1) Defensives; 2) Value; 3) Quality Businesses at Reasonable Yields (QARY).  The result is a lower beta portfolio that has value and quality characteristics. The outcome is income that’s consistently higher than the market, a smoother ride for clients and favourable upside, downside asymmetry to the market.

 How does the fund’s options overlay aim to convert volatility into income?

In addition to dividends from the fund’s underlying Asian equity income portfolio, the fund employs a disciplined call option writing approach to generate option premiums by selling call options as an additional source of income.

As volatility rises, option premiums can increase, potentially providing a larger income buffer and helping mitigate the impact of market price swings at times when investors may need it most.

This total return approach is designed to participate in a portion of the market’s upside while seeking to deliver higher income that may help manage downside risk. One key example is when concerns about an AI bubble began to weigh on markets in July 2026, our options overlay strategy contribute significantly and yielded 10.6% in July.

How is your strategy currently positioned and what has driven its performance?

Our portfolio positioning has a continued overweight to financials; we’ve been overweight insurance and now also adding to banks. Importantly, our sense is that higher NIMs has not been factored into street forecasts yet. Inflation levels are not yet a concern across most of Asia, so real growth driven rate hikes is a good set up for banks.  Conversely, we need to stay selective within defensive bond proxies, mindful to be compensated with a visible and attractive earnings growth profile. Within defensives we like regional telcos that have visible and attractive EPS growth trajectories.  The portfolio now has a higher weighting in cyclicals than in the past, driven by opportunities we are finding across the industrials (AI-enablement)  and energy.

The fund has used the July tech sell-off as an opportunity to close the underweight in Korean memory. In Taiwan, we are rotating into more reasonably valued names with stable, normalised return profiles—particularly in logic companies. Outside of tech, we remain overweight financials and have been selectively adding to Hong Kong financials, including insurance and banks.

This has been a very tech led market year-to-date.  Although we run a lower beta income-oriented strategy, we’ve managed to broadly keep up with the market (achieving more than 90% upside capture). Despite being modestly underweight tech, we had positive stock selection within tech, as well as positive stock selection within materials and energy space. Conversely our structural overweight in defensives did drag on performance, but we think that it’s prudent to have some lower risk names in the portfolio at this point in the cycle.