Seeking income in Asia’s growing markets

Asia’s AI and technology sectors may create income opportunities, while a focus on dividends and cash flow can help balance growth potential with concentration and valuation considerations.

AI has put Asia firmly back on the map for global investors as its countries go toe-to-toe with the US on elements of the rapidly developing technology, including large language models (LLMs) and chip memory.

But there is more to Asia’s story than just its near-term AI prowess. On a longer-term view, facilitated by AI, Asia is set to become a global technology and manufacturing powerhouse, with the potential to influence the region’s growth prospects.

Taking the AI baton

Asia's AI investment opportunity may be supported by two distinct engines. The first is its own technology ecosystem, which is growing fast and producing homegrown innovation across software, hardware and applied AI.

The second is its position in the global semiconductor supply chain – a role being amplified by US hyperscalers committing immense amounts of capital to scale their AI operations.

This momentum has helped deliver strong performance for Asian equities. Over the past year, the FTSE AW Asia Pacific ex Japan index has outperformed the S&P 500 (see Figure 1). Around two-thirds of Asia’s market gains over this period were driven by AI-related beneficiaries, proving the region’s place at the heart of the AI super cycle. The South Korean stock market – largely driven by semiconductors – rallied by close to 80% in 2025¹, while Taiwan’s market has climbed around 120% over the past year².
 

Past performance is not a guide to future performance.

Benefiting from US capex

We are in the middle of an unprecedented capex race. Spending on datacentres by US hyperscalers is tipped to exceed $700bn in 2026 alone (see Figure 2).
 

Sinking so much capital into data centres is affecting hyperscalers’ capital intensity. Capex -to-sales ratios have jumped to more than 30% from around 10% before the AI boom. This is eating up cashflows, with capex as a percentage of operating cashflows hovering around 85%, compared with 40% in 2023 (see Figure 3). Arguably, the US hyperscalers are moving from asset light to asset intensive business models. By contrast, China is early in the capex cycle, spending just 15% of what the US hyperscalers did last year. (see Figure 4). 
 

This vast US capex spend has boosted sales for Asia. From central processing units (CPUs) to liquid cooling plates, Asia is where almost everything in the semiconductor supply chain is manufactured. South Korea and Taiwan, for instance, have enjoyed gains linked to hyperscaler spending, boosting their current account balances as a percentage of GDP (see Figures 5 and 6).
 

Asia’s own tech champions

China has become a key competitor in large language models (LLMs), partly due to healthy competition within its own market. Despite not having access to Nvidia’s latest chips, it has created its own highly competitive AI battlefield where the likes of Alibaba, ByteDance and DeepSeek vie for dominance alongside smaller LLM challengers.

Yet China’s AI lab models are on a par with the US in terms of intelligence. China already dominates other tech areas like electric vehicles, drones and quantum computing, so it is not hard to imagine AI models joining this list.

Asia also dominates the memory space. South Korea is globally dominant in DRAM (Dynamic Random Access Memory), which is vital for temporarily holding the vast amounts of data computers need to work rapidly. South Korea’s Samsung and SK Hynix are the two largest players by market share, followed by the US’s Micron³. The DRAM sector is consolidating while demand from data centres is growing, driving prices higher and increasing wait times. An element of cyclicality is inevitable, but earnings and margins have improved, which could be supportive of sustainable dividends. 

Why Asia for income?

Technology is typically linked with growth companies, but it plays a significant role in Asian income investing too.

The importance of dividends in Asia can be seen in the benchmark composition of total returns between capital and income. Thanks to compounding dividends, over a 20-year period, income has contributed more than half of the index's total return (Figure 7). The reliability of dividends and their compounding can offer portfolio resilience, particularly during times of market volatility.
 

Past performance is not a guide to future performance.

Capturing Asia’s AI upside

Asia offers attractive AI- and technology-led income opportunities, but caution is warranted. Like the US, benchmark concentration also exists in Asia, making active stock selection vital to building a portfolio that differs meaningfully from the benchmark.

For those seeking to capture income from Asia’s longer-term AI growth, a measured approach makes sense: protecting on the downside while retaining upside participation. A benchmark-agnostic equity income strategy with a disciplined yield focus and a fundamental lens can uncover high-quality companies with durable moats, strong balance sheets, disciplined capital allocation and appealing valuations. The result can be a lower-volatility portfolio with attractive dividends and a favourable risk-reward profile.

Charts are for illustrative purposes only.

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