Q2 2026 Equity Outlook: Navigating Geopolitical Risks and Asia Structural Growth

Middle East situation sends equity risk premium higher; oil price trend remains the key market focus.
Many Asian countries highly depend on energy imports; materials, industrials, defence and tech sectors' fundamentals remain largely unaffected.
Continue to focus on Chinese mainland, South Korea, and Taiwan; monitor supply chain stability.
Indian equities face ongoing challenges: lack of liquidity, weak currency, and short-term attractiveness under pressure.

Regional Tensions Persist; Asia Pacific Fundamentals Stay Resilient

Escalating Middle East tensions continue to bring uncertainty to global financial markets, pushing up the equity risk premium. The fallout hinges on the evolution of the conflict, shipping conditions in the Strait of Hormuz, and policy responses from major economies. The Strait carries approximately 20% of global seaborne crude oil, making its stability critical for oil prices. While Chinese mainland is a major export destination for Middle Eastern energy, providing strong incentives for supply continuity, geopolitical risks have already heightened market sensitivity. Prolonged energy price volatility would complicate monetary policy globally, though the likelihood of a sustained global energy crisis remains relatively limited.

Asian economies, though heavily dependent on energy imports, have gradually absorbed the initial shock. Governments have implemented various contingency plans, such as utilizing strategic oil reserves, diversifying energy sources, and implementing price adjustment mechanisms. For now, fundamentals in materials, industrials, defence, energy, and technology sectors across South Korea, Chinese mainland, and Taiwan remain solid. In contrast, the short-term appeal of Indian equities is restricted by geopolitical risks, lackluster liquidity, and valuation considerations. Investors should continue to monitor the potential impact of the situation on global supply chains and monetary policy.

Chinese mainland maintains its moderately accommodative monetary policy; Sustainable economic growth supports tech, industrials and materials sectors

Chinese mainland remains the world's largest crude oil importer, with about half of its imports passing through the Strait of Hormuz. Strategic reserves and commercial inventories provide a buffer against energy price volatility. Recent policy meetings reaffirmed a moderately accommodative monetary stance, with GDP growth targeted at 4.5–5%. Rising defence spending and global investment in infrastructure-including roads, power grids, and AI data centres-are supporting growth in technology, industrials, and materials sectors. Strong demand for semiconductors, memory, manufacturing equipment, and components is also driving demand for cables, wires, and transformers.

Copper and other metals have recorded notable cumulative gains, while heightened geopolitical risks reinforce gold's role as a hedge against volatility. A structural driver is the gradual move by investors and central banks to reduce reliance on the US dollar. This long-term de-dollarisation trend strengthens gold's fundamentals and supports mining-related sectors.

Source: https://data.imf.org/ and https://www.macrotrends.net/ as at 12 March 2026

South Korea and Taiwan: Tech Leadership and Strategic Sectors Remain Robust

South Korea sources about 70% of its crude oil from the Middle East, but proactive agreements with suppliers such as the UAE have helped stabilize fuel prices. Core strategic sectors-including defence, shipbuilding, technology, and power equipment-remain resilient. Corporate reforms under the Value-up Program aim to address long-standing equity discounts. South Korean firms continue to expand globally, with defence enterprises benefiting from rising international military spending. Demand for Liquified Natural Gas (LNG) carriers has also increased as energy supply chains shift, reinforcing South Korea's leadership in shipbuilding. In the AI sector, South Korea maintains a global market share of 70-80% in DRAM and HBM, underscoring its central role in the global supply chain.

Taiwan continues to dominate semiconductor production and supplies around 90% of the world's AI servers. Structural investment in artificial intelligence by global technology firms shows no signs of slowing, indicating that the long-term growth potential of Taiwan's tech sector remains intact. While Taiwan relies heavily on energy imports, the fundamentals of its technology stocks have demonstrated strong resilience, aided by recent efforts to diversify energy procurement sources and reduce dependence on any single region.

Short-term Headwinds vs. Long-term Potential

India imports about 90% of its oil, with supply chains vulnerable to geopolitical disruptions. While recent easing of trade restrictions has provided temporary relief, the equity market continues to face challenges from capital outflows, weak liquidity, high valuations, and currency volatility. These factors weigh on short-term performance, though India's long-term structural growth potential remains intact.

Conclusion

Markets are gradually treating geopolitical risks as a normalized factor. Although Asia remains energy-dependent, strategic sectors in Chinese mainland, South Korea, and Taiwan have demonstrated resilience against energy shocks. Looking ahead, the evolution of the situation, long-term supply chain stability, and the agility of policy responses will remain the primary market focal points.