Asia’s New 'Super Cycle' Driven by AI, Energy, and Defense Investments

Investors are turning their attention to Asia in search of the next breakout in global stock markets.

Driven by the wave of artificial intelligence, South Korea’s stock market posted the highest gains globally this month, attracting substantial capital inflows. Implied volatility in the options market has surged to extreme levels, prompting derivatives strategists to aggressively recommend long structures.

All these signals point to the same conclusion: Asia's rally may have just begun.

Wind Trader News: Morgan Stanley's Asia team has recently emphasized that the underlying drivers of Asia's industrial cycle are shifting from traditional real estate and inventory rebuilding in general manufacturing toward investments in AI and its infrastructure, energy security and energy transition, defense, and supply chain resilience.

Morgan Stanley expects Asia's fixed asset investment to rise from approximately $11 trillion in 2025 to $16 trillion in 2030, with a nominal annual compound growth rate of about 7% between 2026 and 2030, significantly higher than recent levels.

The key difference in this cycle of the Asian industrial cycle is that AI has brought capital expenditures back into the spotlight.

Over the past two years, market discussions on AI have primarily focused on models, applications, and the U.S. tech “Magnificent Seven.” However, from an Asian perspective, the true meaning of AI lies in the comprehensive expansion of chips, memory, servers, optical modules, data centers, power systems, and cloud infrastructure.

Morgan Stanley noted that the proportion of global CIOs ranking AI as their top priority has risen to 39%. Correspondingly, global investment in AI data centers is projected to reach approximately $2.8 trillion between 2026 and 2028, with an annual growth rate of about 33%.

Asia is at the center of the AI hardware supply chain: companies across Taiwan, Samsung, SK Hynix, and China’s semiconductor, server, optical communications, and cloud infrastructure sectors will all benefit from this investment cycle.

The report also projects that capital expenditures by major chip companies are expected to rise from approximately $105 billion in 2025 to around $250 billion annually by 2028, indicating that AI is a capital-intensive race.

China's role is particularly noteworthy.

Morgan Stanley believes that China's AI is a competition of comprehensive system capabilities: computing power determines speed, cloud platforms determine scale, token usage determines economics, and application scenarios determine value allocation.

Amid ongoing external chip restrictions, the synergy between domestic AI chips, local cloud platforms, and large model ecosystems is becoming a new focal point for technology investment in China.

Its assessment shows that China's AI chip market could reach $67 billion by 2030, with domestic self-sufficiency expected to rise to 86%.

It remains to be seen whether this prediction will fully materialize, but the direction is clear: domestic computing power localization has gradually shifted from a policy initiative to a commercial one.

In recent years, the most notable additions to China's export structure have been electric vehicles, lithium batteries, and photovoltaic products—the "new trio."

The report suggests that the next phase of growth in Chinese manufacturing may come from robots, particularly industrial robots and humanoid robots.

Morgan Stanley noted that China has captured approximately half of the global incremental demand for industrial robots. In 2025, global humanoid robot shipments are expected to reach about 13,000 to 16,000 units, with around 90% coming from Chinese manufacturers. In contrast, markets such as the United States and Japan remain largely in the prototype or early validation stages.

More interestingly, the report draws a parallel between China’s current robotics exports and electric vehicle exports around 2019: at that time, EV exports had not yet entered a period of explosive growth, but the supply chain, policy support, and manufacturing capabilities were already largely in place.

Today, the robotics industry also exhibits similar characteristics—its market size is still small, but the industrial chain is expanding rapidly.

Data shows that China’s exports of humanoid robots and related robotics reached approximately $1.5 billion in 12-month rolling terms by March 2026, a level comparable to China’s electric vehicle exports in early 2020.

In the following years, electric vehicle exports expanded rapidly, reaching approximately $70 billion in full-year 2025 exports, with the quarterly annualized rate rising further to about $86 billion.

Of course, whether robots can replicate the electric vehicle curve depends on cost reductions, expanded application scenarios, and overseas regulatory environments. However, China’s advantages in components, complete machine manufacturing, supply chain collaboration, and rapid iteration are already becoming evident.

The expansion of AI data centers also creates massive demands for electricity and energy infrastructure. The more intensive the computing power, the greater the importance of electricity, cooling, power grids, and energy storage.

Morgan Stanley believes that energy shocks will spur investment in energy security across Asia, and since renewable energy still accounts for a relatively low share of Asia’s primary energy consumption, there remains significant potential for future investment.

China has industrial advantages in photovoltaics, electric vehicles, lithium batteries, and other fields, with related exports over the past 12 months approaching the $200 billion mark, making it a major beneficiary of this wave of capital spending in the energy transition.

Meanwhile, defense spending is also experiencing a structural increase across multiple economies in Asia.

Defense spending as a share of GDP has increased in Japan, South Korea, India, and other regions. China and South Korea are also among the world’s top ten defense exporters.

For capital markets, this means demand across industries such as advanced manufacturing, materials, electronic components, and precision equipment could receive longer-term support.

In other words, AI drives demand for computing power, energy sets the infrastructure constraints, and defense and supply chain security provide the geopolitical backdrop for “resilience investments.” Together, these three elements form the foundation of Asia’s supercycle.

In terms of regional benefit priority, Morgan Stanley highlighted China, South Korea, and Japan.

Mainland China excels in the completeness of its industrial chain, manufacturing scale, engineering capabilities, and emerging export categories such as new energy and robotics.

South Korea has strengths in storage, HBM, batteries, and certain device materials; Japan retains deep expertise in semiconductor equipment, materials, precision manufacturing, and industrial automation.

The share of capital goods exports also illustrates this point. The report shows that Thailand accounts for approximately 38%, China for about 36%, Japan for around 35%, and South Korea for roughly 30%. This means that when the global economy enters a new cycle of equipment investment, these economies will exhibit greater external demand elasticity.

From the perspective of capital market structure, these markets have higher weightings in sectors related to industrials, technology hardware, and materials, making macro capital expenditure cycles more likely to reflect in stock market performance.

This also means that the pricing logic in Asian markets may change over the coming years, with a focus on which companies in the capital expenditure chain have orders, technological barriers, and profit elasticity.

The narrative of a supercycle is compelling, but it doesn't mean all industries or companies will benefit simultaneously.

First, expansion in capital expenditures may lead to temporary supply pressure.

China's new energy industry has demonstrated that economies of scale can rapidly open global markets, but may also bring price competition and fluctuating profit margins. Industries such as robotics, AI hardware, photovoltaics, and energy storage are likely to face similar challenges in the future.

Second, technical limitations and export controls remain variables.

There is significant potential for domestic development of AI chips, but gaps remain in advanced processes, HBM, EDA, and equipment materials. The report also notes that domestic chips still lag behind top U.S. chips, but competitiveness can be enhanced through system optimization, advanced packaging, and software adaptation.

Third, the employment structure will also be affected by AI.

Morgan Stanley's "Future of Work" study projects that approximately 90% of occupations will be affected to varying degrees by AI automation and augmentation. Among its sample companies, early AI adoption has already led to productivity gains of over 11%, but also an average net job reduction of about 4%, with significant variations across countries and industries.

For China, how to enhance efficiency while promoting retraining and job transitions will be an important long- and medium-term policy and corporate management challenge.

Fourth, market volatility may increase. The report also notes that the gap between bullish and bearish scenarios in regional markets is widening, indicating that divergent investor expectations regarding AI capital expenditures, export orders, and profit realization will persist.

Author: Bao Yilong (By 2030, Asia’s total fixed investment will rise to $16 trillion) (Asia’s total fixed capital investment will maintain a 7% compound annual growth rate between 2026 and 2030) (Capital expenditures related to data centers in the global AI sector will continue to increase) (The relative advantages of the AI industries in the United States and China) (China’s humanoid and industrial robotics industries are at a development stage similar to the early phase of the electric vehicle industry) (Renewable energy still represents a small share of Asia’s energy mix, and China has benefited significantly from increased spending on energy transition) (The ratio of defense spending to GDP is rising across the region)