Onshore Chinese stocks (A-shares) are outperforming due to their concentration in upstream manufacturing, which benefits from the end of producer price deflation. In contrast, offshore markets (H-shares) are dragged down by underperforming, heavyweight internet stocks, creating a significant performance gap.
Despite the headline MSCI China Index being down, a "bull market is going on underneath the surface." Sectors like semiconductors, biotech, and robotics are performing strongly. However, their positive impact is overshadowed by the heavy weighting and poor earnings of internet giants like Tencent and Alibaba.
The current semiconductor boom is a unique, long-term "super cycle," not a typical memory cycle. The transition to an agentic AI economy is projected to increase processing token demand 24-fold by 2030, creating a prolonged supply shortage that fuels chipmakers' pricing power and profitability for years to come.
While memory chip stocks are driving massive profit growth in the Korean market, there is still over 40% earnings growth in the rest of the market, excluding semis. This non-chip growth is fueled by strong global themes in shipbuilding, power equipment, defense spending, and the popularity of "K-culture."
When a market like Korean semiconductors has strong long-term fundamentals but is tactically overbought, investors can maintain their core position while protecting against a correction. Using attractively priced derivative overlays allows them to hedge short-term downside and stay in a strategic trade for the long run.
North Asian markets (Korea, Taiwan) are dramatically outperforming South Asia (Indonesia) due to a dual dynamic. North Asia is insulated from energy price shocks by its wealth and buffer stocks, while also being the primary beneficiary of the global AI technology boom, a trade South Asia largely lacks.