January 2026
2025 REVIEW
Equity markets across the world performed well in 2025, with a marked outperformance of emerging markets over developed markets. The outperformance of the MSCI Emerging Markets index against the MSCI All Countries World index was the strongest since 2017. More relevant to us, the MSCI Asia ex. Japan Asia index did very well, but looking at its breakdown, all countries did not perform the same. Using MSCI country indices as references, North Asia performed the best, by far. This area covers China, Taiwan and Korea. South-East Asia was at the other end of the spectrum, with negative performances recorded in Indonesia and the Philippines, and a flat performance in Thailand. India also disappointed investors with a performance measured in low single digit. Also, the 3% underperformance of the American S&P index against the MSCI World index ex. US in 2025 was unusual.
The relative underperformance of the US market and the outperformance of emerging markets have everything to do with the tremor that came out of the White House on 2nd April when Trump shocked the world with his planned tariffs against all trading partners of the US, friends and foes alike. It plunged financial markets around the world into a state of dismay that, fortunately, did not last long. The Trump administration was quick to admit its mistake, put everything on ice and come back with revised plans with more palatable tariffs, except for certain countries such as India that were overtly punished for “misbehaving”.
Nevertheless, version 2 of the tariff schedule advanced by the Trump administration still nurtured big uncertainties about their future impact on inflation in the US, on job creation, and the consequences the Fed could derive when implementing its monetary policy. Given these many uncertainties, a big one being whether the Fed chairman would be fired or not, the US dollar kept on depreciating. The dollar index ending the year down by 9.4%, the steepest fall recorded since 2014. The chaotic start of the Trump 2.0 administration enticed many global investors to look for better yield and stability in emerging markets.
Looking at the beneficiaries around the Asia region, we would argue that 2025 was the year of China. It all started in February 2025 when a company no one had ever heard of, DeepSeek, released a Large Language Model (LLM) for AI that was more performant than what Chat GPT and all other LLMs developed in the United States were offering at that time. Its open-source model also meant that any app developer could adopt it for free when designing AI tools. This is when the world discovered in awe that China was a serious contender to the US in the AI race. The timing of the release coincided with the rehabilitation of Jack Ma, the founder of Alibaba, and with the very high-profile endorsement by Xi Jinping of technology entrepreneurs to develop a Chinese AI eco-system that would be financed through private capital and through state subsidies, especially when it comes to building up a home-grown equipment supply chain that remains, to this day, the biggest bottleneck.
The other major achievement of China in 2025 was to successfully stand up to Trump by pulling out from its sleeve its joker and freezing all exports of rare earth magnets that are used in numerous critical industries, from microprocessors to cars, missiles and fighter planes. With China controlling 90% of the world refining capacity of rare earths, Xi had the upper hand over Trump when they met for the first time in six years in November in Busan. A trade tariff truce between the US and China was quickly reached, and Nvidia was even allowed to resume the export of advanced AI chips to China. Coincidence or not, from the moment the two leaders met, the Chinese central bank started orchestrating a steady appreciation of the yuan against the dollar at a time when the trade surplus of China hit a record USD1.08 trillion in the first eleven months of 2025. If that trend was to sustain, it would be a major catalyst for Chinese equity markets in 2026. It was also eye-catching to watch Trump downplaying military manoeuvres by the Chinese People’s Liberation Army around Taiwan around Christmas. Previous US administrations would have been vociferous in similar circumstances.
Eleven months before the US mid-term elections, it looks like Trump does not want to rock the boat with China. Admittedly a full-blown trade war with China may have negative consequences on his chances to keep control of the House of Representatives and the Senate. If that was indeed the case, it could be another reason for Chinese equity markets to perform well in 2026.
In 2025 we saw central banks around Asia, and more prominently the Chinese PBoC, reduce their holdings of US Treasury bonds and build up aggressively their reserves of physical gold. Alongside fears relating to the swelling of the US fiscal deficit, the moves made by Asian central banks to de-dollarize their foreign reserves arguably played a significant part in the strong performance of precious metals during the year.
Other than cryptocurrencies that had a miserable year (the Bloomberg Crypto index lost 18.9% in 2025) and Japanese government bonds that also lost money (10-year JGBs lost approximately 8%), all other asset classes did well. In the equity space, performances around the globe were very lopsided towards the technology sector, and more specifically towards anything related directly or indirectly to AI.
In the US, it was all about the “magnificent seven”, i.e. hyperscalers that provide massive cloud computing infrastructure and services from huge data centres (i.e. Google, Meta, Microsoft, Amazon, Oracle alongside their strategic supplier Nvidia. In mainland China, the highlight of equity markets was the spectacular performance of GPU design houses that went public in 2025. These are the companies that, on paper at least, may one day be able to design AI chips as powerful as Nvidia’s most advanced GPUs. Names to remember are Cambricon, Biren Technology, MetaX Integrated Circuits and Moore Threads, and of course the tech behemoth Huawei which dominates the sector. A major investment theme for years to come is import substitution, a key priority for Xi who understood long ago that relying on US technology was an Achille’s heel.
In Taiwan where the TAIEX index gained 25.7%, it is all about TSMC, the sole producer of advanced GPUs for hyperscalers around the world. It is also about specialised chips built into those AI servers that are assembled in Taiwan by companies such as Foxconn, Quanta, Wistron and Wiwynn. Power management equipment manufacturers that target AI servers, such as Delta Electronics, were also under the spotlight during the year.
In Korea, a market that saw its main KOSPI index gain a staggering 75.6% in 2025, it was all about high bandwidth memories specifically designed for AI applications (or HBM3 DRAM). More specifically, the focus was on Samsung Electronics which had a spectacular recovery following a dismal 2024, and SK Hynix that managed to take the global leadership in AI memory chips. Together with Micron Technology in the US, the oligopoly that exists between these three companies in the memory space may bring headwinds to traditional sectors that do not require advanced memory chips. Given the very high margin generated by HBM chips, the triumvirate of HBM chipmakers is currently moving large production capacities from legacy memories to AI memories, creating a squeeze for those purchasers of legacy memories. The main victim in 2026 could likely be the auto sector that will see its main suppliers running short of the supplies they need.
In Southeast Asia, the focus was more on corruption at the parliament in the case of the Philippines, on the authoritarian tendencies and economic incompetence of the new president in Indonesia, and on political scandals in Thailand. These are three markets we purposefully avoided throughout the year.
In India, the market suffered from a re-balancing of investments made by global institutional investors towards China, and from lacklustre earnings growth. Despite good initiatives taken by the Modi government including a simplification and lowering of the Goods and Services Tax regime, four rate cuts and 125bps reduction in the Repo rate, a steep drop in inflation (down to 0.25% YoY in October) and a strong boost in GDP growth (up to 8.2% YoY in the third quarter), institutional investors pulled more than USD18bn out of the country, a record, to relocate the money in China. The days when China was deemed “uninvestible” seem to be long gone.
2026 OUTLOOK
There are two schools of thoughts about the future of AI, and more specifically about what to expect in terms of market performance for AI-related companies in 2026.
One school gathers those who think that AI is in a bubble, valuations are insane, business models are unstainable, and returns on investments are nowhere to be seen anytime soon. AI is the next dot.com, i.e. a sector that is doomed to crash soon.
The second school of thoughts gathers those who believe that AI is transformative, to the point that it will reshape the world in ways that are so profound that we can hardly imagine them. The discovery of revolutionary medicines that will cure diseases that were thought until now to be incurable is just one of them, and this is what just happened for the first time when the Japanese company Takeda Pharmaceutical announced that its psoriasis drug zasocitinib that had been entirely developed by AI proved to be safe and effective in late-stage trials, marking a milestone in its effort to treat the incurable skin condition.
We tend to fall in the second camp, but we remain mindful of the risks attached to those staggering investments that hyperscalers are underwriting and the lack of visibility as to their future returns.
This is why our strategy is to focus on the “picks and shovels” of AI, i.e. those companies that make AI happen. To be more specific, our focus will remain on the chip manufacturers that are on the receiving end of these massive capex investments, and on those companies that provide the services and hardware needed to make AI exist. This includes logic chip and memory chip foundries, batteries and power management systems for data centres, or fibre optic communication components for AI servers. These companies that are typically based in Taiwan, Korea and China directly benefit from the massive capex of hyperscalers. Whether these investments will turn a profit one day is not their problem, at least not for now. They also trade at much lower multiples than their clients.
Moving away from AI, we are becoming prudent on the auto sector for the reason that competition within the EV space in Asia, and more specifically in China, has reached absurd levels with more than 100 EV brands in China alone fighting for a local market that is fast becoming saturated. The risk we highlighted above about a possible shortage of legacy memories, not to mention the overhanging risk with permanent magnets using rare earth in case of renewed US-China tension, are additional reasons to remain prudent.
We remain bullish on gold and gold mines as the de-dollarization trend of central banks and the exponential growth of the US fiscal deficit are not going to subside anytime soon, in our views. We also believe that China is on a sustainable path to become the pharmaceutical research, development and manufacturing centre of the world and we aim to remain exposed to this sector.
We are looking for signs of political stabilisation in Southeast Asia before we decide to re-enter the region (of course Singapore will always be an exception), while our strategy on India is more bottom-up: There are excellent companies in India that have proven time and time again that their growth path is sustainable and their corporate governance rock solid. We remain positive on the country despite the headwinds coming from the Trump administration, be it the crackdown on H-1B visas given to Indian IT specialists working in the US or the 50% import tariffs that are the highest in the world.
To end this outlook section, we want to reiterate our long-term stand on an issue that regularly pops up in western media each time there are military manoeuvres in the Formosa Strait: the reunification of Taiwan with China. After 30 years on the ground, it remains our strong belief that as long as the US does not push the president of Taiwan to declare independence, China will not invade Taiwan.
PORTFOLIO REVIEW
A few critical decisions were made during the year. One of them was to increase the exposure of the funds to gold by adding Chinese gold mining company Zhaojin Mining and Zijin Gold International, while increasing exposure to Zijin Mining Group that has both large copper and gold exposure.
We also added exposure to the Chinese life insurance sector through China Life and Ping An Insurance as the sector benefited from a drop in interest rates and from new accounting rules that boosted the value of their shareholdings in banks.
We increased the funds’ exposure to the EV and data centre battery sector (CATL and Sungrow Power Supply) while we added exposure to a few large Chinese internet platforms specialised in music and video streaming (Tencent Music, Kuaishou Technology).
We reduced our exposure to the Chinese EV space (BYD and Xiaomi) and to the “gig economy”, i.e. food and parcels delivery via Meituan, JD.com and PDD, as price competition within these two sectors has become extreme.
We also added exposure to the Chinese pharmaceutical sector through investments in innovative drugs developers Hengrui and Akeso, and in Contract Development and Manufacturing Organisation (CDMO) Wuxi Apptec.
In India, we rotated out of the IT service sector (Infosys, Tata Consulting Services) a few months before H-1B visas became a topic of concern between the US and India. We also reduced our exposure to the Indian banking sector (ICICI Bank) and increased our exposure to the Non-Banking Financial Sector (NBFC) sector through Shriram Finance, Bajaj Finance and Cholamandalam Investment and Finance when the Reserve Bank of India started cutting rates while promoting a dovish agenda.
We increased our exposure to the 2-wheeler sector via Eicher Motors (the manufacturer of Royal Enfield motorbikes) and added exposure to the Indian EV sector through Mahindra and Mahindra.
In Korea we raised our exposure to the logic and memory chip sector (Samsung Electronics and SK Hynix), while we kept a maximum exposure to TSMC in Taiwan.
In Southeast Asia we cut the only position we had in Malaysia – Maybank – as the data centre financing theme never took off because of headwinds created by the US administration on the export of Nvidia chips to the country.
Our exposure to Singapore was reduced during the year after we took profit on one of our investments in the city-state, a retailer named Sheng Siong, after it performed strongly. The fund did not have any exposure to any other Southeast Asian country during the year, and in hindsight that proved to be the right strategy.
ASIA PORTFOLIO
JKC Asia Fund gained 24.2% in 2025 when the MSCI Asia ex. Japan index gained 29.7%.
Our best picks this year as defined by companies that gained more than 50% were either AI-related or gold related, and they were all located in Korea, Taiwan or China. The star performer was SK Hynix in Korea, up 287%, followed by Suzhou TFC, a Chinese optical module maker for AI servers, up 227%, Zijin Mining in China, up 157%, Samsung Electronics, up 134%, Zijin Gold, up 104% and mid-cap chip testing company Chroma ATE in Taiwan, up 103%.
Most of the investments we made that underperformed in 2025 were based in India, and we exited a few of them. BLS International, Oberoi Realty, Computer Age Management Services, Infosys, Tata Consulting Services were all victims of liquidity pouring out of the country as a result of a de-rating of valuations deemed expensive, or in the case of the technology consultancy giants of the threat of AI replacing the need for outsourcing and H-1B visas becoming difficult to obtain, if not excessively expensive.
CHINA PORTFOLIO
JKC China Fund gained 26.1% in 2025 when the MSCI China gained 28.3%.
The star performer of our China portfolio was Suzhou TFC, an optical communication chipmaker that equips all Nvidia AI servers and that gained 227% over the year. Our second-best performer was Pop Mart, the company behind the Labubu doll that took the world by surprise with its little monster plush toy. Even though in hindsight we should have bought it earlier, we certainly sold our entire position close to its peak, after our investment gained 207%. Our gold and copper exposure through Zijin Mining and Zijin Gold were the next best performers, our positions gaining in 2025 158% and 104% respectively. China Life came next, with a 93% gain, followed by Alibaba, up 76%, and by Zhaojin Mining Industry, a pure gold mining play, up 64% over our holding period.
At the other end of the spectrum, Meituan was our worst performer, down 35%. Meituan is the Chinese leader in food delivery, and a major component of all Chinese equity indices. The company had a dismal year after JD.com decided to enter the sector and to spend billions to subsidise food deliveries, forcing its competitors Ele.me (part of Alibaba) and Meituan to follow suit. The entire sector ended up announcing significant losses as a result. Our second detractor was Ningbo Tuopu, a Tesla supplier of auto and robot spare parts which had a roller coaster year quite similar to what Tesla experienced itself. This position had dropped by 29% since the start of the year when we exercised our stop-loss. Other stop-losses were exercised in 2025 on small positions we held in Hexing Electrical (down 27%), Megmeet Electrical (down 26%) and Damai Entertainment (down 26%).
ESG HIGHLIGHTS IN 2025
The year 2025 has marked a historic turning point for ESG and sustainable investments, characterized by an unprecedented regulatory divergence across major economies. The anticipated volatility we forecasted last year has materialized into a deeply fragmented global landscape, with countries pursuing fundamentally different paths on sustainability regulation. This divergence has transformed the ESG movement from a period of coordinated global momentum into a multipolar reality requiring sophisticated navigation and strategic flexibility.
The most defining characteristic of 2025 has been the stark policy divergence across major regions. In the United States, the Trump administration orchestrated a comprehensive dismantling of federal climate and ESG initiatives. The withdrawal from the Paris Climate Agreement, the rollback of SEC climate disclosure rules, the rescission of ESG considerations in retirement planning, and the proposed elimination of the EPA’s legal authority to regulate greenhouse gases collectively represent the most aggressive federal retreat from climate policy in modern history. This was further amplified by 16 state Attorneys General urging major tech companies to reject EU sustainability regulations, warning of US legal risks and thus marking an extraordinary extraterritorial dimension to the domestic backlash.
However, this federal retreat catalysed a powerful state-level countermovement. Twenty-four states formed the US Climate Alliance to independently uphold the Paris Agreement objectives, with California emerging as the undisputed leader. California’s climate disclosure law not only survived legal challenges but by October encompassed over 4,000 companies, effectively creating a parallel mandatory disclosure regime that fills the federal void. This state-federal bifurcation has created a unique compliance landscape where large US companies face stringent state requirements despite hostile federal policy.
Europe pursued a strategy of pragmatic retrenchment while preserving long-term ambition. Facing competitiveness pressure and business lobbying, the EU dramatically simplified its sustainability framework. The November reforms raised Corporate Sustainability Reporting Directive (CSRD) thresholds to 1,750 employees and €450 million in revenues, thereby removing an estimated 80% of previously covered companies, while restricting Corporate Sustainability Due Diligence Directive (CSDDD) to only the largest enterprises and eliminating mandatory climate transition plans. Yet beneath these tactical retreats, Europe maintained strategic commitments, setting an ambitious 90% emissions reduction target for 2040 and achieving tangible results with a 50% cumulative emissions reduction since 2005 in Emission Trading Scheme sectors. The European Central Bank’s integration of climate factors into its collateral framework particularly signaled that Europe’s fundamental commitment to climate-aligned finance remains intact despite near-term regulatory simplification.
Asia-Pacific emerged as the unexpected leader in ESG momentum. China’s regulatory advancement proved most consequential. The country expanded its carbon market to cover 60% of national emissions, it mandated legally binding sustainability disclosures at ministerial level, and it announced absolute emissions caps for major industries by 2027. Most significantly, China set its first absolute emissions reduction target, 7 to 10% below peak levels by 2035, alongside commitments to expand renewable capacity sixfold, making it one of very few countries accelerating climate ambition while others retreat.
Beyond China, 36 jurisdictions adopted or began implementing ISSB Standards, with Hong Kong expanding its sustainable finance taxonomy and India releasing comprehensive climate finance and ESG debt frameworks. This regional momentum positions Asia as the primary driver of global ESG standards convergence going forward.
The year 2025 revealed a fundamental paradox: as political opposition to “ESG” intensified and regulatory frameworks were simplified, the substantive integration of sustainability into corporate strategy and investment practice often deepened. Global standard-setting efforts however produced mixed results.
On one hand the ISO and GHG Protocol partnership to unify emissions measurement standards represents meaningful progress toward addressing fragmentation that has long hindered comparability. The continued expansion of ISSB adoption, now covering 36 jurisdictions, demonstrates appetite for consistent sustainability disclosure frameworks despite political headwinds in certain major economies.
However, international climate diplomacy suffered setbacks. COP30’s failure to reference fossil fuel phase-out for the second consecutive year, despite objections from over 80 countries, underscored the growing difficulty of achieving global consensus amid geopolitical fragmentation. The absence of binding deforestation commitments and explicit transition pathways revealed that the geopolitical environment has fundamentally shifted from the cooperative momentum that characterised the 2015 Paris Agreement era.
As we move into 2026, the fragmentation that defined 2025 is likely to persist and potentially intensify. Europe will proceed with simplified yet substantive disclosure requirements under extended implementation timelines. Asia will maintain its regulatory momentum, with China’s expanded carbon market and forthcoming emissions caps beginning to fundamentally reshape industrial competitiveness dynamics. The United States will continue navigating its federal-state divide, where California’s mandates govern thousands of companies even as federal policy retreats. Among emerging considerations, the intersection of artificial intelligence and sustainability warrants close attention, as companies increasingly deploy AI for climate modeling while simultaneously addressing AI’s substantial energy consumption and environmental footprint.
The year 2025 has transformed ESG from a landscape of broad consensus to one of fragmentation and contested priorities. Yet beneath surface turbulence, structural forces continue driving sustainability integration: intensifying climate risks, tightening resource constraints, and competitive dynamics increasingly favouring companies that navigate environmental and social challenges effectively.
The information and material provided herein do not in any case represent advice, offer, sollicitation or recommendation to invest in specific investments. The information contained herein is issued by JK Capital Management Limited. To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed.