Asia-Pac Japan
Portfolio

August marked a return to broad-based regional leadership after July's dispersion. Leadership across Japan and Korea was broad, with AI memory, semiconductor equipment, automation and electrical infrastructure names all benefiting from confirmation that global hyperscaler capital expenditure remains on an upward trajectory. Mainland China also advanced, but the Hang Seng declined, as domestic-demand and property concerns outweighed the improvement in selected high-tech manufacturing indicators.

China's data continued to describe a two-speed economy. The official manufacturing PMI improved to 49.8, a better reading than recent months but still in contraction territory below the 50 threshold. Beneath that headline, high-tech and equipment manufacturing sub-indices exceeded 51, underscoring the resilience of export-oriented technology and capital-goods production even as domestic demand and the property sector remain weak. It is this divergence, more than the headline PMI, that explains why mainland technology and equipment exposures rose in August while Hong Kong-listed, domestic-demand-sensitive names lagged.

Japan's rate regime tightened further. The 10-year JGB yield reached 2.945%, its highest level since 1996, extending the move seen in July and raising the valuation hurdle for long-duration growth equities and capital-intensive renewable-energy developers. Financials were a relative beneficiary of the higher-rate backdrop, consistent with the portfolio's existing exposure to Japanese banks as a partial offset to duration-sensitive positions elsewhere in the sleeve.

The AI supply chain received an important validation point during the month. Nvidia's US$3.5 billion investment in MediaTek convertible bonds strengthened the case for Asian custom silicon, advanced packaging and design-ecosystem participants, extending the Nexus thesis beyond memory and foundry capacity into the broader semiconductor value chain that Taiwanese and regional suppliers occupy.

Energy import sensitivity remains a live cross-current for the region. With oil trading above US$90 a barrel, import-dependent Asian economies face a margin and currency headwind, particularly for Japan and Korea. At the same time, sustained higher energy costs strengthen the commercial case for efficiency, electrification and domestic power generation, reinforcing rather than undermining the portfolio's structural exposure to grid, power-equipment and industrial-automation names.

For the Nexus thesis, August was a broadening rather than a reversal of July's narrative. Where July repriced who captures memory-sector economics, August reaffirmed that the underlying AI-infrastructure demand signal remains intact across Japan, Korea and the mainland Chinese technology supply chain, even as domestic demand, property and higher energy costs continue to differentiate returns within the region.