Asia’s rise as a capital magnet: why investors are diversifying beyond the U.S.
At the Milken Institute Asia Summit in Singapore on October 1, 2025, Kevin Sneader, president of Goldman Sachs for Asia-Pacific (ex-Japan), said investors have channelled roughly $100 billion into Asia excluding China over the prior nine months as part of a diversification trend away from concentrated U.S. exposure. That shift does not imply an abrupt exit from U.S. markets but signals reweighting across global portfolios toward Asian equities, fixed income and private assets.
Why now? valuation, performance and policy differentials
There are three measurable, near-term drivers:
* Valuation gaps: The MSCI AC Asia ex-Japan index traded at a trailing price/earnings (P/E) of about 16.5 and forward P/E ~14.2 as of late September 2025, compared with the S&P 500’s forward P/E in the mid-20s (around 23–27 depending on source and date). That P/E discount makes Asia an attractive source of potential relative total-return upside for global allocators.
* Income and yield dispersion: Many Asian markets offer higher dividend yields and steeper credit spreads on corporate and sovereign debt than comparable U.S. instruments, increasing carry for yield-seeking investors in a world where central bank policy divergence remains important.
* Strategic re-positioning around resilience: Large investors and sovereign funds increasingly prioritise supply-chain resilience, near-shoring and regional diversification after recent geopolitical shocks. Institutional allocators — from private wealth to sovereigns — are rotating allocations to capture secular growth in Asian technology, healthcare and consumer sectors.
Where the money went — pockets of demand
Flows are not uniformly spread. Japan, Korea, Taiwan and selected Southeast Asian markets have been net beneficiaries, while China’s equity gains in 2025 were driven more by domestic participation than by outsized foreign inflows. Meanwhile, India has seen mixed signals: despite a robust IPO pipeline, foreign portfolio investors withdrew about $2.7 billion in September 2025 and roughly $17.6 billion year-to-date through September, reflecting tactical repositioning among global funds. This divergence highlights that “Asia” is heterogeneous — investors are favouring markets with clearer earnings momentum or more attractive relative valuations.
The investor case — returns, diversification and sector exposure
From a portfolio perspective, several quantitative arguments drive allocation changes:
* Expected excess return: If Asia ex-Japan’s forward P/E trades at ~14 and the U.S. at ~24, and if earnings re-rate modestly or grow faster, the relative return cushion is material.
* Diversification: Lower correlation between U.S. mega-cap AI winners and broader Asian cyclicals/consumer names reduces portfolio concentration risk, especially for multi-asset funds.
* Sector exposure: Asian allocations increase exposure to manufacturing, semiconductors, private healthcare and consumer discretionary segments that may offer higher secular growth rates than some mature U.S. sectors.
However, investors must weigh these against higher political, regulatory and liquidity risk in select markets. The OECD and IMF continue to warn that capital-flow volatility can spike with global risk aversion.
Risks and caveats
The inflow headline masks sizeable regional variation and risks. China remains a special case — much of its 2025 equity bounce was home-grown, and foreign mutual funds remain cautious. India is experiencing FPI withdrawals even as large IPOs (projected to raise several billion dollars into year-end) continue to attract domestic and retail demand. A sudden U.S. policy shock, a spike in global yields, or regional geopolitical events could reverse flows quickly. Multinational managers must therefore stress-test portfolios for currency swings, liquidity squeezes and regulatory shifts.
What this means for investors
Institutional and retail investors contemplating higher Asian weights should: tilt toward liquid, large-cap exposures or diversified ETFs to manage liquidity risk; use active managers for markets with higher regulatory complexity; hedge macro tail risks (currency and rate exposures); and
reassess country allocations quantitatively — not by headline flows alone. Importantly, diversified Asia allocations should be motivated by long-term structural factors (population, tech adoption, manufacturing re-shoring) rather than short-term momentum alone.
Conclusion
The roughly $100 billion of inflows into Asia (ex-China) over nine months to October 1, 2025, marks a meaningful re-balancing by global investors seeking valuation advantage, yield, and strategic resilience. Yet the rotation is nuanced: country-level fundamentals, governance, liquidity and geopolitical risk will determine winners and losers. For disciplined investors, Asia’s re-emergence is a call to rethink global allocations with careful sizing, robust risk controls, and an eye on long-term secular growth trends.
The image added is for representation purposes only
