Equity markets in APAC have seen some of the largest swings over the past two weeks, with greater risk in markets that had high pre-conflict exposure to technology and the global AI sector. Supply risks remain for affected industries, including semiconductors with reliance on helium. Fitch reported that South Korea sourced nearly 65% of its helium imports from Qatar last year, and Japan publicly disclosed its reserves level on Monday. EM APAC remains the best-held equity region globally, and developed markets in the region are also better-held than their global peers.

Apac Allocation Outlook

There is scope for higher APAC allocations as exposure to US assets was relatively light even before the recent adjustment. Chinese demand could improve due to base effects and additional stimulus, although growth targets at the National People’s Congress did not exceed expectations. Near-term hedge ratios are expected to stay high. Rising energy costs may weaken Asia’s balance of payments, while higher front-end global yields may reduce repatriation demand from traditional funding sources. We see that EM APAC equities remain a core holding, showing resilience despite recent market swings. For instance, the MSCI Emerging Markets Asia Index has demonstrated continued investor confidence, holding its ground better than many developed market peers so far this year. This strength underpins our strategy to maintain exposure to the region’s growth potential. However, we are actively managing sector-specific risks, particularly in semiconductors, which faced supply chain concerns over helium back in 2025. To protect our positions in tech-heavy markets like South Korea and Taiwan, we are buying put options on key names like Taiwan Semiconductor Manufacturing Company. This provides a clear downside buffer against any renewed supply disruptions that could impact production and earnings.

Portfolio Hedging Approach

The case for staying invested is supported by China’s recent economic actions, which seem aimed at shoring up demand. We’ve seen Chinese PMI data stabilize above 50 in the first quarter of 2026, and Beijing has signaled further fiscal support. These factors create a positive idiosyncratic driver for the entire APAC region, independent of global trends. At the same time, we must acknowledge the broader macroeconomic headwinds that call for higher hedge ratios. Brent crude oil has been stubbornly trading near $92 a barrel, which pressures the balance of payments for Asia’s major energy importers. This sustained high cost could erode corporate margins and weigh on regional currencies. Therefore, while maintaining our core long positions, we are hedging our overall portfolio against these wider risks. We are purchasing put spreads on broad regional indices to protect against a market downturn driven by rising energy costs and firm global yields. With the U.S. 2-Year Treasury yield holding steady, the incentive for capital to flow into Asia is dampened, making these portfolio protections essential in the weeks ahead. Create your live VT Markets account and start trading now.

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