The generative AI wave and global supply chain restructuring are reshaping Asia’s economic landscape. Fidelity International held its Asia investment outlook briefing on September 10, putting forward a key thesis: Asian manufacturing is breaking away from its old model of relying purely on external demand and shifting toward a new growth cycle driven by investment — with Taiwan and South Korea as the core beneficiaries of this AI dividend.
Peiqian Liu, Asia economist at Fidelity International, analyzed that US tech giants have extended their AI infrastructure investment plans all the way to 2028, which has kept goods trade surpluses and current account balances climbing strongly for Taiwan and South Korea — the world’s semiconductor and high-tech powerhouses. Both countries are actively channeling AI-driven tax revenues and corporate profits into domestic semiconductor capacity expansion and critical infrastructure development.
However, this flood of capital also brings new policy challenges. Liu pointed out that South Korea is pushing large-scale AI and semiconductor investment while simultaneously exhibiting classic reflationary cycle characteristics: tech export growth is boosting corporate profits, fiscal revenues, and investment activity, but inflationary pressures are constraining room for monetary easing. Taiwan’s situation is somewhat different — she believes Taiwan is working to channel domestic savings into strategic industries, but if income growth and fiscal support gradually translate into consumption demand, Taiwan could face a similar predicament to South Korea.
Fidelity expects both Taiwan and South Korea to adopt a hawkish-leaning posture of “fiscal pedal to the metal, monetary brakes applied,” with central banks not ruling out tightening measures to balance economic growth and financial stability. That said, Taiwan — with its corporates’ ample cash flow and the private sector’s massive savings base — shows relatively stronger resilience against high interest rates and the risk of rates climbing again.
Divergent Policy Paths Across North Asia’s Four Major Markets
While Asian countries are heading in similar directions, their policy objectives and starting points differ. Liu further broke down the policy divergences among North Asia’s four major economies:
| Market | Policy Direction | Core Challenge |
|---|---|---|
| South Korea | Driving large-scale AI and semiconductor investment | Reflationary cycle limits room for monetary easing |
| Taiwan | Channeling domestic savings into strategic industries | Income growth converting to consumption may fuel inflation |
| Japan | Attracting private capital into key industries | Fiscal expansion must balance bond yields and market confidence |
| China | Shifting investment focus from real estate to AI and advanced manufacturing | Whether the new economy’s scale can offset the drag from the old model |
She noted that Taiwan, South Korea, and Japan are forming a combination of fiscal support and relatively tight monetary policy, striving to promote investment-driven growth while maintaining financial stability. China, by contrast, retains room for simultaneous fiscal and monetary easing due to deflationary pressures and weak demand.
In Japan, the government is pursuing an investment-led strategy and long-term nominal GDP growth targets to attract private capital into key industries and lift potential economic growth. But Liu cautioned that fiscal expansion must be paired with productivity gains and market confidence to avoid pushing up bond yields or forcing the Bank of Japan into a more forceful policy response.
China’s transition is unfolding unevenly. While emerging growth engines such as technology and advanced manufacturing continue to advance, the weak property market and subdued household demand continue to suppress inflation, and tepid private borrowing appetite is limiting the effectiveness of monetary easing. The real challenge, she argued, is whether the new economy’s scale can offset the drag from the old model and ultimately drive stronger domestic demand.
Taiwan and South Korea Tech Stocks Offer Attractive Discounts; Electrification Opportunities Emerge
On asset allocation strategy, Fidelity fund manager Ian Samson laid out a clear investment view. He noted that global tech stocks now trade at around 25 times forward earnings, while Taiwanese and South Korean tech equities still enjoy a significant valuation discount — and after a summer of position consolidation, valuations look highly compelling.
Samson further explained that AI has evolved from a pure technology theme into a major force driving global capital expenditure, encompassing a complete ecosystem of computing power, advanced chips, memory, networking equipment, data centers, and power infrastructure — with North Asia holding the most critical supply chain advantages.
Beyond semiconductors themselves, the enormous computing power and data center demand unleashed by AI is also fueling an “electrification” wave over the next ten to twenty years. He specifically highlighted grid equipment, energy storage systems, transmission and distribution networks, and power management systems as areas with long-term growth potential, with related commodities set to benefit in tandem.
On individual market positioning, Samson believes Taiwan possesses the world’s most competitive semiconductor and AI hardware industrial ecosystem, with valuations more attractive than comparable Western market investments. South Korea, with its global competitiveness in memory, semiconductors, and batteries, stands to benefit from AI demand growth and the energy transition trend. Japan holds a critical position in semiconductor equipment and advanced manufacturing, while bank stocks stand to benefit from widening interest margins amid rebounding inflation, policy support, and interest rate normalization; mid-cap stocks offer a combination of earnings growth momentum and reasonable valuations.
In China, even as the broader economy faces challenges from the property adjustment and weak demand, policy continues to support strategic industries including advanced manufacturing, optical communications, AI hardware, and energy storage. The ChiNext and STAR50 boards provide avenues to participate in new-economy growth.
Samson concluded that while semiconductor and other tech industries carry cyclical characteristics and market valuations depend on corporate earnings resilience, if AI infrastructure investment continues to expand over the next decade, Asian companies stand to benefit persistently from demand growth in related components, equipment, and physical infrastructure.
Asian Currencies Severely Undervalued; Fixed Income Value Emerges
Currency and fixed income markets are also reaching an inflection point. Samson emphasized that Asian countries have accumulated massive current account surpluses over the long term, and major Asian currencies — including the Taiwan dollar, Japanese yen, Korean won, and Chinese yuan — are currently broadly and severely undervalued by the market, with considerable appreciation potential ahead.
On fixed income investing, he noted that while markets remain focused on widening US fiscal deficits and inflation risks in developed markets, the store-of-value function of Asian assets deserves renewed investor attention. China, benefiting from a relatively benign inflation environment and a massive trade surplus, offers Chinese government bonds and the yuan as relatively defensive assets; Japan, Taiwan, and South Korea likewise possess sound external account structures and relatively undervalued currencies.
For investors looking to reduce dollar concentration risk and enhance portfolio diversification, Asian fixed income markets could offer long-term allocation opportunities supported by fundamentals.
Liu concluded by noting that the global monetary environment remains a key variable for Asian economies. Elevated US Treasury yields could limit further easing by Asian central banks and exert pressure on regional currencies; if the Federal Reserve overtightens, it could also weaken the momentum supporting North Asian exports and the tech cycle. Going forward, the key factors to watch are whether technological innovation can translate into sustained onshore investment and demand, and whether central banks across the region can effectively manage the resulting inflationary and financial market pressures. If this transmission mechanism is successfully established, Asia will have the opportunity to move from its past export-led growth model toward a new investment-driven, domestically-supported growth cycle.
