Asian Equities Navigate Tariff Turbulence: Why Tech and Materials Are Leading the Charge Over U.S. Futures

The global equity landscape in early 2025 has been reshaped by shifting tariff policies, with Asian markets proving more resilient than their U.S. counterparts. While U.S. futures have swung wildly on trade fears, Asian equities—particularly in technology, materials, and industrials—are defying the odds through sector-specific advantages and tactical opportunities. Here's why investors should pay attention.

The Tariff-Tempered Divide

The latest tariff updates have created a stark divergence between Asian and U.S. markets. While the S&P 500 and Nasdaq futures faced steep declines in late June—driven by fears of retaliatory tariffs and inflation—Asian equities like Japan's Nikkei 225 and China's Morningstar US China Index have held ground.

The gap is no accident. Asian markets have leveraged three key strengths:
1. Sector-Specific Resilience: Tech and materials stocks, critical to global supply chains, are thriving despite tariffs.
2. Policy Flexibility: Countries like Japan and South Korea have negotiated lower tariff rates, cushioning their export-driven economies.
3. Diversification: Asian markets are less concentrated in interest-rate-sensitive sectors (e.g., financials) than the U.S., reducing vulnerability to Fed policy uncertainty.

Tech and Materials: The Winners' Circle

The tech sector is the starkest example of Asian outperformance.

• Japan's Tech Powerhouse: Companies like Advantest and Tokyo Electron, which supply semiconductor equipment, surged as U.S. tariffs on Asian tech were limited to 25%—lower than feared. The Nikkei 225's 0.3% Q2 gain was driven largely by tech and auto stocks, which export to tariff-exempt regions under USMCA agreements.
• China's AI Play: Beijing's support for AI and cloud infrastructure—exemplified by DeepSeek's breakthrough—has insulated tech giants from broader market fears. The MSCI China Information Technology Index outperformed the S&P 500 Tech Sector by 5 percentage points in Q2.

Meanwhile, materials stocks—from alloys to paints—are benefiting from Asia's manufacturing dominance.

• Shanghai Zhongzhou Special Alloy Materials (CN¥10.92B market cap) saw earnings grow 21% Y/Y, fueled by demand for high-end materials in EV batteries and aerospace.
• SKSHU Paint Ltd. (CN¥27.93B) trades at a 21% discount to its fair value, with Q1 net income doubling to CN¥105M.

Regional Breakdown: Where to Focus

Not all Asian markets are equal. Investors must pick sectors and geographies wisely:

Japan: Tech and Auto Stability

• Auto sector: Honda and Toyota gained as tariffs on Japanese cars were capped at 25%, below the 35% initially threatened.
• Risk: SoftBank's 1% drop highlights the perils of exposure to volatile U.S. startups.

China: Growth Amid Volatility

• Undervalued Gems: Shengyi Electronics (38.6% discount to fair value) and Beijing HyperStrong Technology (40.9% discount) offer high growth at bargain prices.
• Policy Support: Beijing's fiscal stimulus, including subsidies for EVs and AI, will underpin tech spending.

South Korea: The Tariff Tightrope

• Winners: SK Hynix and Samsung Electronics rose on U.S. data-center demand, but their U.S.-listed shares dipped 8% in late June due to tariff fears.

Malaysia and Taiwan: Caution Advised

• Challenges: Malaysia's 25% tariffs and Taiwan's tech export restrictions have dampened growth.

The Risks: Geopolitics and Rate Cuts

While opportunities exist, risks loom large:

1. Tariff Escalation: If BRICS nations face 10% surcharges, global supply chains could fracture.
2. Fed Policy: A September rate cut (now 77% likely) might buoy U.S. futures but could weaken Asian currencies.
3. Corporate Debt: High leverage in sectors like Chinese real estate remains a hidden pitfall.

Investment Strategy: Go Tactical, Not Blind

The playbook for investors:

1. Overweight Asian Tech and Materials:
2. Buy Shanghai Zhongzhou (special alloys) and SKSHU Paint (undervalued with strong cash flows).

3. Consider ETFs like the iShares MSCI Japan Tech ETF (EWJX).

4. Underweight U.S. Futures:

5. Avoid tech-heavy S&P 500 futures until tariff risks subside.

6. Hedged Exposure:

7. Use options to protect against a July 9 trade deal failure, which could spike volatility.

8. Watch Liquidity:

9. Emerging markets like Indonesia and India remain risky due to low liquidity and governance gaps.

Conclusion

Asian equities aren't just surviving—they're thriving—by leaning into sectors insulated from tariffs and leveraging policy tailwinds. For investors, this is a call to think globally but act selectively: focus on tech leaders with export flexibility, materials stocks with pricing power, and avoid the U.S. futures rollercoaster until clarity emerges. The next trade deal deadline (July 9) will test this thesis—but for now, Asia's resilience is no accident.

Data as of July 7, 2025. Past performance ≠ future results. Consult a financial advisor before making investment decisions.