BNY’s EMEA Macro Strategist Geoff Yu reports that emerging market (EM) Asia-Pacific (APAC) equities continue to be the best-held equity region globally, despite recent sharp market swings and sector-specific risks, particularly in semiconductors due to helium supply concerns [1]. Yu highlights that the boundary between EM and Developed Market Asia is often blurred, but markets with significant pre-conflict exposure to technology and the global AI sector are most vulnerable to corrections. Supply risks remain for these affected industries, with Fitch noting that South Korea sourced nearly 65% of its helium imports from Qatar last year, and Japan recently disclosed its helium reserves publicly [1].
Despite these risks, both EM and developed APAC equity markets are better-held compared to their global peers. Yu sees potential for increased APAC allocations, supported by relatively light prior U.S. exposure and the prospect of improved Chinese demand, which could be driven by base effects and additional stimulus. However, he notes that growth targets set at the recent National People’s Congress in China have not exceeded expectations [1].
In the near term, Yu expects hedge ratios to remain high as rising energy costs threaten Asia’s balance of payments and increasing global front-end yields dampen repatriation interest for traditional funders. These factors are likely to temper further gains in APAC equities, even as positioning remains robust [1].
CONCLUSION
EM APAC equities are maintaining strong investor positioning, but sector-specific risks and macroeconomic headwinds are prompting higher hedging activity. While there is scope for increased allocations, near-term gains may be limited by rising energy costs and global yields. The market remains resilient, but caution is warranted as supply and demand dynamics evolve.