Podcast Episode Summary
Podcast: Thoughts on the Market
Episode: Asia’s Economy and Markets in 2026
Host: Laura Wang (Chief China Equity Strategist, Morgan Stanley)
Guest: Chetan Aya (Chief Asia Economist, Morgan Stanley)
Date: December 10, 2025
Episode Overview
This episode provides a forward-looking analysis of Asia's economic outlook and markets for 2026, with a particular emphasis on China's equity market performance. Laura Wang and Chetan Aya discuss export trends, inflation expectations, central bank responses, and the implications for investors. They also highlight sectors of opportunity and the shifting patterns in capital flows, especially into Chinese equities.
Key Discussion Points and Insights
1. Strong Asian Export Growth in 2025 and Outlook for 2026
- Surprising Strength in Exports: Contrary to concerns about tariffs and trade headwinds at the start of 2025, Asia’s export growth was robust, reaching 8% (00:21 - 00:43).
- Driver: Tech Exports & AI:
"Tech exports have driven this strength... all because of the story on AI and tech development that we have all been watching."
— Chetan Aya [00:44] - Non-Tech Export Recovery Forecast:
"...non tech exports will recover in 2026. In fact that's the key call we are making..."
— Chetan Aya [00:51] - U.S. Demand & Tariff Uncertainty: Enhanced U.S. demand and easing tariff uncertainties are expected to further support export recovery in 2026 (00:51 - 01:10).
2. Shifting from Tech to Non-Tech Export Growth
- Significance of the Shift: Non-tech exports are more likely to drive job growth, capex, and broader economic recovery, compared to capital-intensive tech exports.
"...non tech exports recovery is very important for the broader economic recovery. ...you will see that broadening out of growth with follow up in capex job growth and consumption recovery."
— Chetan Aya [01:40 - 02:34] - Example: Taiwan: Strong GDP from tech exports with weak consumption underscores the need for broader growth drivers [01:54].
3. Inflation Trends and Monetary Policy in Asia
- Modest Inflation Pickup Expected:
"...the non tech exports recovery materializes, you should see improvement in capacity utilization... that should reduce the disinflationary pressures..."
— Chetan Aya [02:40] - End of Rate Cuts: Most Asia central banks have kept inflation below target and responded with rate cuts. Rate cuts are expected to end soon with stable policy rates through 2026.
"...central banks in the region would end their rate cutting cycle. ...policy rates should remain largely stable through to the end of 2026."
— Chetan Aya [03:14 - 03:54]
4. China Equity Markets: 2025 Performance and 2026 Outlook
- 2025: A Standout Year:
"2025 was a very good year for China equity market. ...both MSCI China and Hang Seng Index delivering more than 30% return..."
— Laura Wang [04:09] - 2026: Stability Over Breakout: 2026 is expected to be a year of stability for Chinese equities, focused on preserving 2025 gains rather than seeking significant further upside.
"It's a year for investors and for the market to preserve and protect what has been achieved in 2025..."
— Laura Wang [04:16] - Earnings Growth Forecast:
"For 2026, we see MSCI China's earnings growth year on year at around 6%."
— Laura Wang [04:53]
5. Investment Flows and Global Interest
- Growing Investor Interest: Increasing global investor attention, especially towards R&D and innovation-heavy sectors. Positioning in Chinese equities remains light, indicating room for increased allocation.
"...still a quite sizable underweight, which means there will be much higher room for them to increase their allocation gradually in 2026..."
— Laura Wang [05:17] - Focus Areas: AI, smart manufacturing, automation, robotics, biotech (05:36 - 05:47).
"We want to make sure that we focus on the sectors that are very well aligned with the national growth strategy with a strong focus in R&D and innovation..."
— Laura Wang [05:51]
6. Thematic Opportunities and Market Dynamics
- Capital Market Activity in Hong Kong:
"Hong Kong... is the most active IPO market in the world in 2025..."
— Laura Wang [07:03] - Policy Support: Policy backing for Hong Kong’s role as a global financial hub is strong and expected to continue (07:10).
- Recommended Thematics: Innovation/R&D, anti-evolution themes, and corporate governance reform are key thematics for investors in 2026 (07:26).
Memorable Quotes and Timestamps
-
On Surprising Export Growth (Tech-Driven):
"Tech exports have driven this strength... all because of the story on AI and tech development that we have all been watching."
— Chetan Aya [00:44] -
On Why Non-Tech Exports Matter:
"...non tech exports recovery is very important for the broader economic recovery..."
— Chetan Aya [01:51] -
On Central Bank Policy:
"...central banks in the region would end their rate cutting cycle. ...policy rates should remain largely stable through to the end of 2026."
— Chetan Aya [03:47] -
On 2026 Outlook for China's Market:
"It's a year for investors and for the market to preserve and protect what has been achieved in 2025..."
— Laura Wang [04:16] -
On Investment Opportunities Aligned with National Strategy:
"We want to make sure that we focus on the sectors that are very well aligned with the national growth strategy with a strong focus in R&D and innovation..."
— Laura Wang [05:51] -
On Hong Kong’s Rising Role:
"Hong Kong... is the most active IPO market in the world in 2025..."
— Laura Wang [07:03]
Noteworthy Segments and Timestamps
- Asia exports surprised to upside: Tech-driven growth [00:21 – 01:10]
- Why shift to non-tech exports matters [01:35 – 02:34]
- Expected inflation pick-up and central bank policy [02:34 – 03:54]
- Chinese equities: 2025 recap & 2026 forecast [04:09 – 04:59]
- Growing global interest and focus on innovation sectors [05:05 – 05:51]
- Hong Kong's position as IPO leader & thematic opportunities [07:02 – 07:26]
Final Thoughts
This episode paints a cautiously optimistic picture for Asia's economic outlook and China’s equity markets heading into 2026. While export composition and inflation dynamics shift, investors are encouraged to focus on stability, sectors aligned with China’s national growth strategies, and themes like innovation and governance reform. With global interest in Chinese equities rising and Hong Kong solidifying its status as a global IPO hub, the year ahead is set to offer a breadth of market opportunities amid broader economic normalization.