Asian bank stocks are enjoying one of their strongest runs in years as investors rotate away from the increasingly volatile artificial intelligence trade and towards companies offering dividends, resilient earnings and greater exposure to domestic economies, according to a report by Bloomberg.
The shift towards financial stocks reflects a more defensive approach among investors facing persistent inflation, geopolitical uncertainty and growing concerns over crowded AI-related positions.
The MSCI Asia Pacific Financials Index gained 8.6% in July, its strongest monthly outperformance against the region’s technology stocks on record. Financial shares in Hong Kong also posted their best month in almost four years, while Japanese banks have significantly outpaced the broader Topix this year.
The trend is not confined to Asia. US financial stocks have also repeatedly reached record highs this year as investors have broadened their exposure beyond technology and AI.
Asian financials also delivered their strongest monthly outperformance against the broader MSCI Asia Pacific index since October 1998, when Japan launched a major bank rescue programme following the Asian financial crisis.
Japan has been one of the clearest beneficiaries of the rotation.
The Topix banking index has risen more than 40% this year, roughly twice the gain in the broader benchmark. Mitsubishi UFJ Financial Group has also overtaken Toyota to become Japan’s most valuable listed company.
The country’s banks are benefiting from stronger loan demand, corporate governance reforms and an environment in which interest rates are gradually moving higher.
Expectations that the Bank of Japan could take a more hawkish stance have also increased as the yen remains under pressure.
Hong Kong financial stocks are also drawing increased interest as enthusiasm for technology shares cools.
Investors have been adding exposure to banks and insurers, with HSBC Holdings and BOC Hong Kong Holdings both gaining more than 25% this year. Morgan Stanley expects Chinese financial companies to outperform during the second half, pointing to earnings momentum and the possibility of higher valuations.
Indian banks are benefiting from a different catalyst: expectations of accelerating credit growth, while Singapore’s major banks are also benefiting from strong wealth-management activity. DBS Group Holdings and Oversea-Chinese Banking Corp have seen their shares reach record levels as fee income from wealth management expands.
In Australia, meanwhile, the broader equity market recently reached a record high, while Commonwealth Bank of Australia remains in focus ahead of its earnings.
