Asia stocks set for strong H2 2025, Bernstein says; Bullish on India, S.Korea

Bernstein analysts are bullish on Asian markets for H2 2025, anticipating continued outperformance against U.S. equities, driven by increased foreign capital inflows, improved earnings, and accommodative policies. They particularly favor South Korea, recommending a "double down" given the KOSPI's over 30% year-to-date gain, attractive valuations, and expected upgrade cycle, while also seeing continued gains in India despite elevated valuations. Conversely, Bernstein maintains a neutral stance on China due to weak macro trends and a lack of policy support, and warns Taiwan's rally may be overdone, despite overall Asian markets staging a strong Q2 recovery after initial tariff-related headwinds.

Analysis

Bernstein analysts have issued a bullish outlook for Asian markets ex-Japan in the second half of 2025, projecting continued outperformance against U.S. equities. This view is underpinned by expectations of robust foreign capital inflows, an improving earnings cycle, and a more accommodative policy landscape. South Korea is highlighted as a top conviction, with a recommendation to "doubling down" on exposure, citing the KOSPI's over 30% year-to-date gain, still-attractive valuations, and an anticipated upgrade cycle following the resolution of political turmoil. While the outlook for India also remains positive, driven by a recovery in earnings and strong economic growth, Bernstein cautions that valuations are becoming expensive again as the Nifty 50 index nears record highs. Conversely, a neutral stance is maintained on China, where market resilience is offset by weak macroeconomic trends, an ongoing earnings downgrade cycle, and a lack of significant foreign interest or policy support. The firm also warns that Taiwan's sharp rally may be overextended as foreign inflows appear to be peaking, while Singapore and Hong Kong are framed as attractive value and high-yield opportunities.

Key Decisions for Investors

• Investors should consider overweighting exposure to South Korean equities, given the strong institutional conviction, political stabilization, attractive valuations, and expected earnings upgrade cycle.
• While maintaining exposure to India's growth story, it is prudent to be mindful of elevated valuations and potentially await more attractive entry points as the market approaches all-time highs.
• A neutral or underweight position on Chinese equities is warranted until there are clear catalysts for a reversal, such as significant policy stimulus, a halt to the earnings downgrade cycle, or a return of foreign capital.
• Consider diversifying across the region by exploring value and high-yield opportunities in Singapore and Hong Kong, while monitoring laggard markets like Indonesia and Malaysia for signs of a turnaround in fundamentals.