Asia's resilience to the recent energy shock was surprisingly robust. A key, non-obvious factor was China's 45% reduction in gas imports, which freed up supply for the rest of the region, which is highly dependent on Middle Eastern gas, and helped avoid severe shortages.
Despite short-term slowdowns from energy price shocks, Japan's underlying economic fundamentals remain strong. A structural labor shortage is driving sustained wage growth and encouraging companies to increase labor-saving capital investments, pointing to a resilient long-term outlook.
The current investment thesis in Asia favors capital expenditure beneficiaries over consumer stocks. Japan's market is rich in companies aligned with major themes like AI tech diffusion and the energy transition, making it a more attractive allocation than emerging markets, which are more heavily weighted toward consumer and services.
A historically wide gap in earnings revisions exists within Japan's market. Every consumer sub-sector is seeing downgrades, while sectors like energy, materials, and tech hardware see upgrades. This extreme divergence directly challenges the narrative of a resilient Japanese consumer.