Global de-dollarisation to boost Asian equities

Interest rates are trending downward while the US dollar weakens, reinforcing the ongoing trend toward de-dollarization
Capital is progressively flowing into non-US dollar risk assets across key Asian markets, including Taiwan, South Korea, Singapore, Hong Kong and China
Asian equities broadly represent a mix of growth-driven technology stocks and high-dividend value shares.

As US rates decline and the dollar weakens, the trend of de-dollarisation is likely to continue. As investors seek opportunities in risk assets, Asian equity markets are poised to benefit. Within them, Asia's AI and related sectors offer structural growth potential and risk diversification benefits.

The Fed has cut rates for two consecutive months. Officials hold diverging views on further rate cuts next month, amid delays in key economic data due to the US government shutdown. Fed Chairman Powell previously indicated that the October quarter-point rate cut was a form of risk management. With the US job market showing signs of strain and inflation not spiking, markets generally anticipate that interest rates will continue their downward trajectory.

In the face of the ever-surging US debt, protectionist tariffs, and geopolitical uncertainty, many nations are gradually reducing their reliance on the dollar. Although the dollar remains the world's most liquid and sizeable capital market, we believe de-dollarisation still has a long way to go. Currently, driven by a multitude of factors, funds are gradually flowing into non-dollar risk assets, including Asian stock markets in Taiwan, South Korea, Singapore, Hong Kong, and China. Since the Fed's September rate cut, stock markets in Asia (ex-Japan and ex-China) recorded net fund inflows in both September and October.

It's almost impossible to discuss stocks without touching on the tech sector. While investors are no strangers to the Magnificent 7 stocks, Asia is also home to a wealth of AI-related companies, whose appeal and potential rival those of their US counterparts. Asian manufacturers, especially in Taiwan and South Korea, hold critical market shares in AI chips, servers, power supplies, and memory chips. Approximately 90% of the world's AI servers are produced in Taiwan. Spurred by robust demand for AI hardware, one major electronics maker posted record third-quarter revenue, up 11% year-on-year. Many major US tech players have demonstrated that they have not slowed their AI investments, suggesting that supply chain momentum remains intact and company earnings upgrades are likely to continue.

Taiwan leads in the supply of AI servers, while South Korea dominates memory chip production. As of the second quarter this year, data shows that South Korea accounted for about 70% and 80% of dynamic random-access memory (DRAM) and high-bandwidth memory (HBM) production, respectively. AI data centres rely on massive amounts of memory chips, including DRAM to process data in real time, as well as HBM for deep learning or large-scale computations. At present, the majority of memory chips are produced by two major South Korean manufacturers. One of them indicated that its 2026 production capacity has already been filled and is considering expanding its capacity to meet demand. South Korean media reported that, due to surging demand, some memory chips could see prices rise by as much as 30% in the fourth quarter.

Apart from the tech sector, areas in Asia worth noting include industrials, energy, and high-dividend value plays. The shipping industry is buoyed by rising AI-related orders across the supply chain, and given that AI models consume massive amounts of energy, the development of nuclear energy is poised to become an emerging trend. On the other hand, against the backdrop of falling rates, Japanese financial and Chinese energy stocks are value stocks worth considering, as they enjoy stable fundamentals while offering compelling dividend yields.

Overall, with US rates trending lower and de-dollarisation likely to stay on course in the long run, funds are expected to continue flowing into risk assets. Asian equities are diverse, encompassing growth stocks in the tech sector and value stocks in dividend plays. With their risk diversification benefits, investors should keep an eye on this space.