At the start of 2026, there was a clear sense among investors that Asia was one of the prime beneficiaries of a broad shift in sentiment away from the US market and towards greater global diversification. But the onset of a highly uncertain war in the Middle East has impacted Asian market volatility, particularly given its reliance on Middle Eastern fuel supplies.

In early April we talked to Gabriel Sacks, manager of Aberdeen Asia Focus (AAS), and Isaac Thong, who oversees Aberdeen Asian Income Fund (AAIF), about their perspective, strategies and the opportunities they are finding in the face of market turbulence.

How far have recent events affected your longer-term perspectives on Asian opportunities and corporate strengths?

GS: There’s a range of scenarios to consider and it doesn’t look as if there is an easy fix in the near term. Higher oil prices will likely drive inflation, possibly resulting in slower global growth and a slowdown in interest rate cuts or even rate hikes. But while it’s not good news, it shouldn’t lead to structural changes in the longer-term outlook for most of our portfolio companies.

Ultimately, we remain bullish on the longer-term opportunity for Asian corporates. The structural growth drivers for many businesses remain firmly in place, and erratic policy from the current US administration should continue to compel investors to diversify.

How do you react to market volatility in terms of repositioning your portfolios?

GS: At such times there is always a temptation to make material changes to the portfolio to reflect the relative winners and losers, but we try to maintain a level head.

From a top-down perspective we consider whether there are any tweaks necessary to better position the portfolio for a more turbulent period as far as country, sector or style factors are concerned.

At a stock level, for holdings where our conviction was already waning and the crisis exacerbates the situation, we might well look to reduce or exit those positions, adding to stocks that offer a more secure cash flow stream and/or less downside risk from a valuation point of view.

But these are only tweaks, and most of the time we don’t do too much trading. Overall, our focus on resilient, high-quality businesses with superior competitive positions and strong balance sheets means they are well-suited to challenging economic conditions.

What are your main investment concerns at times of geopolitical and market volatility?

IT: It really depends on what is driving the volatility. Geopolitics has been and will remain a cause for concern for some time, and we have become slightly more defensive in the past few months. But our primary concern is always on company fundamentals and whether the businesses we invest in are well prepared for any possible scenario.

Ultimately, though, when fear really grips markets – and we are not at that stage yet – you tend to get indiscriminate selling, which we see primarily as an opportunity to buy good businesses cheaply.

What do prospective and existing Asia investors need to bear in mind at times of volatility?

IT: Volatility will always exist in equity markets, but it is important to keep a long-term perspective and avoid knee-jerk reactions.

Asia remains exceptionally well-placed both at the macro and micro level to deliver attractive total returns. Its economies are set to deliver stronger growth, have been more orthodox than previously in policy-making, and boast a vast number of listed businesses that are globally competitive, with strong balance sheets, cash-flows and governance.

Even so, I would recommend investors to be diversified on a global basis and to be comfortable with their allocation across asset classes. If that is sorted, then one just needs to avoid being overly fearful of market corrections – though that is easier said than done.

Are mid and smaller cap companies more vulnerable than their large-cap counterparts when markets are volatile?

GS: Not necessarily. While large-caps are often well-established businesses with more diverse revenue streams and better funding sources, we are focused on under-researched opportunities that are often much less correlated to global markets and to each other. This can bring down the aggregate level of risk, or volatility, of our portfolio. It also means there are more mispriced businesses, given the lack of adequate sell-side research.

Moreover, when we talk about Asian smaller companies, we are looking at the bottom 25% of listed businesses in Asia. Many are local or global leaders in their field; but they are focused, high-growth businesses that in many instances are benefiting from change, rather than large incumbents prone to disruption.

What has been the impact on dividend paying stocks of market volatility?

IT: A substantial number of companies have reported full year earnings for 2025, and we are not yet seeing any impact to dividends; we are actually seeing positive dividend surprises in China, Korea, and Singapore, where companies have been embarking on shareholder value creation initiatives.

Longer-term, although the downturn in Asian markets in March wiped out all the gains since the start of the year, the positive dividend trajectory within our holdings offers a compelling story.

However, the longer the conflict drags on, the more likely we are to move towards a stagflation scenario, which will then go on to affect earnings growth and dividends. We have therefore made some minor portfolio adjustments towards stocks that benefit from inflation or high-quality domestic facing companies that have strong pricing power, less raw material input risks and lower levels of debt.

Are some markets better insulated from volatility than others?

IT: China has proven to be quite defensive in the current environment given low earnings expectations; it also has sufficient stockpiles and, in many cases, domestic supply of critical raw materials and energy generation capacity.

There is also little concern on inflation, given the recent deflationary environment in China; there is also ample room for policy support, should the authorities choose. The currency has therefore been relatively strong as a result.

GS: On the flip side, South-East Asia and India seem more vulnerable to a prolonged conflict, due to their reliance on energy from the Middle East and the associated implications for inflation/consumption and things like fertiliser costs in agricultural activities.

Have recent events thrown up any growth-focused buying opportunities?

GS: Markets have corrected but are still not pricing in a worst-case scenario, so we have been watching events unfold and developing an appropriate pipeline of stocks to pounce on, should valuations reach even more attractive levels.

However, we have added to slightly more defensive holdings, such as a business offering testing, inspection and certification services in China which we view as a steady-eddy compounder that should deliver a healthy annual growth rate in earnings of around 10-15% over the medium term.

We have also added to select opportunities in the tech hardware supply chain, which one would typically see as more growth-oriented – but this has been largely funded by taking profits from some of our AI-related stocks in Taiwan and South Korea that have performed exceptionally well.

What about income-oriented opportunities?

IT: Yes, we manage the AAIF portfolio quite actively and have added names in the energy and materials space. We have also reallocated capital within tech hardware to favour companies with more attractive valuations, given the market volatility. 

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