This is a sponsored advertorial from Federated Hermes.

The Asia ex-Japan region offers diverse macro opportunities, with valuation dispersions and structural growth shaping an attractive investment landscape.

Asia ex-Japan is a region of contrasts: deep value in some markets, structural growth in others, and a wide dispersion of winners and losers. For the Federated Hermes Asia ex-Japan team, this complexity is not a challenge but an opportunity. They believe these dynamics are creating an attractive environment for stock selection, with the Asia ex-Japan Strategy positioned to capitalise on the region’s most compelling opportunities in 2026 and beyond.

China, Korea and Thailand: Three markets, one compelling valuation story

Across the region, the team sees its richest bottom-up opportunity set concentrated in China, South Korea and Thailand.

China, despite persistent global scepticism, is now trading close to record-low valuations. Investors can access high-quality companies at price-to-earnings multiples well below those of Western peers, while also benefitting from dividend yields of 3–5%. In a market where the government bond yields hover near 2%, that premium is rare – and, in the team’s view, reflects meaningful mispricing rather than structural decline.

Importantly, China’s growth story is evolving. The emphasis is shifting away from “scale at any cost” toward innovation, productivity, and resilience. Rising research and development (R&D) intensity, progress toward technological self-reliance, and continued upgrades in manufacturing and clean energy are helping to stabilise corporate earnings. With consensus expectations pointing to a mid-teens rebound in 2026 and competitive pressures easing across several industries, the team believes patient investors are being paid to wait for sentiment to normalise.

South Korea, by contrast, has already been a standout performer. After a decade characterised by the so-called “Korea Discount”, the market appears to have entered a genuine multi-year re-rating. Even after a strong rally through 2025 and early 2026, valuations remain attractive, with high-quality global champions still trading on single-digit P/E multiples.

Four structural forces underpin this transformation:

1. Compelling valuations despite triple-digit earnings growth in leading sectors.
2. Korea’s position at the centre of the AI semiconductor super cycle, spilling over into autos, defence, nuclear, shipping, and materials.
3. Governance reform momentum, including the Value-Up Programme and enhanced shareholder protections.
4. Supportive policy flows, with domestic incentives bringing capital back home.

While semiconductor cyclicality remains a key risk, the team believes the strength of these underlying trends supports continued conviction in their Korean positions, even after taking disciplined profits.

The third opportunity lies in Thailand. Long weighed down by political and macroeconomic concerns, the market has underperformed for several years. Those headwinds have driven valuations to multi-year lows, creating what the team views as a selective but compelling opportunity. High-quality companies are trading on low-teens or even single-digit earnings multiples — with sentiment considerably weaker than fundamentals suggest.

Where Federated Hermes is finding alpha today

Across markets, the Strategy is selectively rotating into areas where fundamentals are beginning to turn and where valuations remain undemanding.

In China, opportunities span four categories:

• Consumer sectors, where expectations have finally reset to realistic levels.
• Commodity-linked industries showing early signs of earnings recovery.
• Overlooked technology and AI-adjacent innovators, including robotics, sensing technologies, and advanced industrial equipment.
• High-yielding stocks, offering the potential for both income and downside protection.

Taken together, these areas represent a broader and higher-quality opportunity set than has been available in the region for many years.

Risks and the road ahead

Geopolitics — from energy markets to global supply chains — remains the region’s largest swing factor. Korea’s sensitivity to semiconductor demand and China’s regulatory unpredictability also warrant close attention.

Nevertheless, the overall message from Federated Hermes is clear. Dispersion across the region is high, valuations are compelling, and active stock selection is once again a meaningful source of alpha. South Korea offers structural rerating potential, China presents deep value alongside improving fundamentals, and Thailand provides selective contrarian upside.

In a global environment hungry for diversification and growth, the Asia ex-Japan Strategy is positioned not just to navigate the region, but to harness its next cycle of opportunity.

Learn more: Asia ex-Japan Equity | Federated Hermes Limited

 

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Disclaimer

For professional investors only. Capital at risk.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other communications. This does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.

Issued and approved by Hermes Investment Management Limited (“HIML”) , as distributor, which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. 

This is a sponsored advertorial from Federated Hermes.