Beyond the Magnificent 7: Why investors are flocking to Asia’s tech sector

As US equities have faced challenges this year on the back of trade policy uncertainty, Asian markets including China and South Korea have boomed, fuelled by advances in AI technology and supportive domestic economic policies.

In the six months to July 2025, the FTSE China 50 Index has returned 16%, far head of its long-run average of 4% annually since inception. Similarly, the S&P Asia 50 Index, comprised of the 50 largest companies in Asia ex-Japan, returned 16% in the six months to July, compared to 5% annually since inception.²

Investors have taken notice, with the iShares FTSE China 50 ETF (IZZ) taking in more than AU$80 million from Australian investors in 2025 to date, versus AU$29 million of outflows last year.³

This trend has been replicated across other funds in iShares’ local range offering significant Asian equity exposure. The iShares Asia 50 ETF (IAA) has seen AU$60 million in flows so far this year, versus AU$42 million outflows in 2024, while the iShares MSCI Emerging Markets ex China ETF (EMXC) - offering significant weightings to Taiwan and South Korea in particular - has taken in more than AU$255 million since its inception in June 2024.⁴

Globally, we’ve also seen ETF investors embrace China in particular as a complementary exposure amid the US tech rally. Globally, China tech ETFs have gathered almost US$22 billion so far this year, outstripping US tech ETFs with around US$18 billion of flows.⁵

This is perhaps no surprise as US equities now represent as much as 70% of global equity market indices, and tech and communications make up 35% - a threshold last crossed just prior to the dot-com bubble of the early 2000s (see chart below).⁶

Tech and communication equities market cap share

Source: LSEG Datastream/BlackRock Investment Institute, 25 August 2025. Chart shows MSCI World information technology and communications sector market cap as share of total MSCI World market cap

Asia sales/earnings growth estimates are above many developed markets⁷

12-month equity earnings and sales growth estimates

Source: LSEG Datastream/MSCI, as of 14 July 2025

Chinese stocks have surged this year as investors bet on a domestic economic recovery and get excited about the country's latest advances in AI, particularly after DeepSeek released its new model in early 2025.

Since the announcement of a comprehensive stimulus package in late 2024, China’s government has stepped up efforts to pull the economy out of deflation and address oversupply in key sectors that has seen growth falter. Chief among these are measures to combat ‘involution’, or excessive competition that has led to unsustainable deflationary price wars between major businesses.

Trade tensions with the US have so far played positive for China’s economy as businesses race to import products from China before final US tariff rates are announced, though recent data indicates this momentum could be slowing down.

With the potential for more stimulus to be unleashed at the Chinese Communist Party’s fourth plenum in October, as well as recent tax changes having made share investments more advantageous for domestic investors, onshore Chinese equities in particular have rallied in the month of August.

Similarly to the US, China’s equity market is also heavily skewed towards tech, which has allowed it to benefit from the AI boom. The top three weightings in the FTSE China 50 Index are some of China’s biggest AI adopters, with social media giant Tencent having recently launched its DeepSeek rival AI model that can personalise content recommendations and moderate content on its WeChat platform.

E-commerce group Alibaba has also announced a US$53 billion investment in AI over the next three years, while smartphone company Xiaomi is integrating AI through new products like home and car assistants and smart glasses.⁸

South Korea has also seen a combination of domestic tailwinds and continuing AI success drive strong outperformance in its equity market so far in 2025. Reforms enacted by newly elected South Korean president Lee Jae Myung focus on evolving the domestic equity market to be more shareholder friendly and reduce the control of South Korea’s chaebols, or family-controlled conglomerates.

Semiconductors are South Korea’s top export and, similar to export ‘front-loading’ effects seen in China, have been growing at a rapid rate as importers seek to circumvent US tariffs⁹ – though South Korea was recently granted a 15% tariff rate rather than the initial 25% proposed by the US administration.

Samsung, South Korea’s largest listed company, also has a 30% share of the global smart TV market¹⁰ and is currently exempt from US tariffs as a consumer electronics producer.

Taiwan is another key market of focus for investors looking to tap into the AI buildout. TSMC – the world’s largest chipmaker and Taiwan’s biggest company by market cap¹¹ – has seen soaring demand for its chips, which are exempt from US tariffs on semiconductor imports, on the back of a deal to expand its manufacturing facilities in the US.¹²

In July 2025, Taiwan broke its record for annual trade surplus with the US just seven months into the year¹³, illustrating the strength of demand for advanced chips as megacap tech companies continue to step up spending.

With correlation between world equity markets at record lows this year¹⁴, we’ve seen increased interest from investors in accessing specific regions or markets where opportunities lie, rather than broad global equity exposure. Across iShares’ global range, precision ETFs – those that allow investors to access a single market, sector or region – have gathered more than US$9 billion dollars in 2025 to date.¹⁵

Locally, ETFs offering investors exposure across Asia and emerging markets allow the opportunity to dynamically slice their allocations depending on their market views. For those wishing to tap into potential further recovery in China, IZZ offers exposure to the 50 largest offshore Chinese stocks, with large weightings to sectors such as consumer discretionary and financials that are likely to benefit from economic expansion.

Technology and communication weightings across iShares’ Asia ETF range

Source: BlackRock data as of 27 August 2024

For broader Asia market exposure with a technology tilt, investors could consider IAA. Currently the lowest cost Asian equities ETF on the ASX¹⁶, IAA offers a 44% weighting to technology and 17% to communication, with TSMC, Tencent and Alibaba among its top holdings.¹⁷

Investors interested in broader exposure to emerging markets that are set to benefit from mega forces in addition to AI may wish to implement their views using EMXC. With a 30% weighting to technology through key holdings such as TSMC and Samsung,¹⁸ the fund also holds significant exposure to other emerging markets like India and Brazil, that are set to benefit from longer-term trends such as reshoring and demographic change.

By making use of one or multiple exposures, investors can tap into the positive fundamentals, supportive domestic tailwinds and tech-driven momentum of some of Asia’s leading economies.