Year of the Fire Horse bodes well for Asian investment

The Chinese Year of the Fire Horse – bringer of strength, speed, energy and renewed opportunities – occurs only once every 60 years; but it arrived early for many Asian markets.

2025 saw a welcome injection of fresh dynamism into many of the region’s economies, with the MSCI AC Asia Pacific up 21.2% over the year in GBP terms – well ahead of the wider MSCI World (Hedged to GBP) index on 16.7%.

That upturn reflected a widespread swing in investor sentiment away from US mega caps and towards other parts of the world offering better value and new opportunity, leading to a broad rerating for many Asian markets.

In addition, as Isaac Thong, Lead Manager of Aberdeen Asian Income Fund (AAIF), observes, “China has become investible again,” as its policymakers have progressively unwound the restrictive economic measures of the Covid period.

Aberdeen’s two Asia-focused investment trusts, Aberdeen Asian Income Fund and Aberdeen Asia Focus (AAS), take different but complementary approaches to this hugely diverse investment arena; both prospered on the back of last year’s solid regional performance.

AAIF, with a diversified Asia-Pacific portfolio of high-quality, dividend-paying, mainly large-cap stocks, delivered share price growth of 30% in 2025, as well as a 7% yield as of the end of the year.

Meanwhile Gabriel Sacks, Lead Manager of AAS, has distinctly different areas of the regional market in his sights: AAS is small-cap oriented, with less focus on China and more on the opportunities in markets such as India, Taiwan and smaller south-east Asian economies. Its shares enjoyed a 27% uplift in 2025, dramatically outpacing its composite benchmark.

Portfolio perspectives

Looking ahead, both managers recognise the pressure on portfolio companies to deliver the strong earnings that will justify last year’s positivity. However, both also see cause for continuing optimism in the Year of the Fire Horse.

“We had a very solid 2025 and this year has started equally well; we think that can continue, but there are obviously geopolitical and other risks around, so we need to be grounded and avoid over-exuberance,” Gabriel explains.

China, in particular, is a source of both excitement and caution.

In geopolitical terms it is very much back on the international stage as developed nations seek to realign their global interests, with recent visits from the premiers of both Canada and the UK, and the German Chancellor waiting in the wings.

Economically, challenges remain. “Some areas are doing really well: AI, robotics, biotech. But it’s been tougher in more traditional sectors, especially around consumerism and real estate,” Isaac comments.

AAIF’s income focus means that the team has concentrated more on picking up dividend-paying stocks that are “too cheap” in those established parts of the economy, with high yields providing some compensation for relatively pedestrian growth until sentiment improves more widely.

So far, Isaac adds, the Chinese authorities have been slow to take meaningful action to stimulate struggling industries, so there is still considerable scope for rerating in these areas.

He expects further incremental policy easing, rather than any major shake-up on that front. However, he says the recent removal of the so-called ‘three red lines’ that restricted new borrowing for property developers should help to boost activity in the real estate sector.

The AAS team takes a more diversified approach across markets, to tap into both the rapidly evolving AI story and the smaller-cap opportunities in India and southeast Asia.

For Gabriel, one meaningful risk is that investors are simply too optimistic on AI earnings expectations. “We are still positive on Asian tech stocks, but we have taken some profit there and we’re looking for other areas of focus within the AI supply-chain that can still deliver upside,” he says.

“More broadly, we’re very positive in the smaller, very cheap Asian markets with high-quality companies and a more domestic perspective. We like countries such as Vietnam, Indonesia, the Philippines, which are not well represented in portfolios globally.”

Prospects for 2026

Historically, Gabriel notes, AAS has delivered net asset value growth averaging more than 12% over its 30-year history.

“Earnings in general still look healthy for the coming year, with our companies still having potential to deliver a similar level of earnings growth of 10-15%, so we’re pretty positive. And we are quite diversified in terms of our key investment themes and markets, which also helps.”

AAIF’s income and growth-based mandate demands a more total returns perspective. As Isaac explains, the team needs to maintain that balanced approach to counterbalance the risks inherent for big businesses in these fast-growing economies, especially as they become more export-focused and vulnerable to international policy or tariffs.

“Asia’s capacity for rapid growth has always been there - but a lot of Asian products and services are now globally competitive and therefore much more visible, from the BYD electric buses in London to Honor and Xiaomi smart phones and e-commerce giant Temu,” he points out. 

Overall, while the Year of the Fire Horse may prove to be somewhat less dramatic than its predecessor, both managers anticipate continuing earnings strength and positive sentiment for Asia.

Investors who are interested in both the dynamism associated with small‑cap markets and the income potential of higher‑yielding companies may find that the two funds offer exposure to different parts of the Asian investment landscape through their respective approaches.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

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Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.

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