Some years ago, to help inform a bizarre survey by a national newspaper, a journalist of my acquaintance was dispatched to have his fortune told. The deed was done in a tiny parlour on Skegness seafront.
His chosen mystic kicked off the session by offering him a selection of crystal balls. The bigger the ball, she explained, the clearer the vision. Saddled with a strictly limited expense account, he opted for the smallest of the lot.
The first prognostication centred on his professional life. He was warned he should prepare for a major shake-up in the workplace. Barely 30 minutes later, when he called his news desk to report his findings, he was informed most of the editorial staff were poised to quit over a dispute with senior managers.
Alas, every other prophecy turned out to be spectacularly inaccurate. Supposed insights into various relationships, the prospect of romance and even a car purchase failed to reflect reality in the slightest. Like all her peers, his purported clairvoyant duly received less-than-stellar marks in the survey round-up.
The point I am trying to make is that prescience tends to be a rather hit-and-miss affair. Irrespective of how sizeable your crystal balls might be, nothing is certain. You might get lucky occasionally, but the overwhelming likelihood is that your putative wisdom will end up looking like pure guesswork
The great Yogi Berra probably summed it up better than anyone when he famously observed: “It’s tough to make predictions – especially about the future.” Nonetheless, with all the usual caveats firmly in place, here are four broad-brush forecasts of what 2026 could have in store for the sphere of Asian smaller companies.
China’s renaissance will gather pace
After several years of subdued performance, China bounced back in 2025. It clearly underlined its status as a major player in multiple technology-led fields, including electric vehicles, batteries and renewable energy.
It is true that the economy still faces challenges. Thanks to dynamics such as a weak social safety net, a lengthy real estate crisis and the lingering effects of COVID-19 lockdowns, Chinese consumers remain relatively reluctant to spend.
Yet this translates into an extraordinary level of pent-up demand. With the government determined to unlock a massive accumulation of savings, smaller companies stand to feature among the main beneficiaries when a huge dam burst of domestic consumption is at last unleashed.
AI will continue to drive returns all along the supply chain
A year has passed since China shocked the West by unveiling state-of-the-art chatbot DeepSeek. Literally overnight, the world realised the AI race would not be contested only by a select group of of US tech titans.
It has long been appreciated, of course, that Asia as a whole is home to a number of AI “enablers”. Many of these are set to be further boosted this year by the up cycle in the market for memory chips.
Historically, South Korea has lagged Taiwan in the chip-producing stakes. Unprecedented shifts in demand and pricing could see it make up significant ground in 2026.
Southeast Asia will deliver real value
Our fund’s holdings can be divided into four geographical “buckets”: China; India; Taiwan and South Korea; and Southeast Asia. The last of these has routinely lagged its counterparts, but 2025 brought signs that it could finally be ready to shine.
This positive trajectory looks set to continue in 2026. While it is true that there are still political difficulties to overcome in markets such as the Philippines, the value on offer is hard to ignore.
At present, at least by most meaningful standards, many of Southeast Asia’s best smaller companies are priced notably cheaply. This is just one reason why they could represent an interesting contrarian call over the longer term.
More investors will recognise Asian smaller companies’ appeal
It is no secret that a handful of US technology stocks have accounted for a sizeable share of global equity performance in recent years. Even so, diversification was a key theme for the wider investment community in 2025.
Mounting fears over the S&P 500 index’s high valuation and conspicuous skew towards the tech sector repeatedly set nerves jangling. The uncertainty generated by Donald Trump’s second spell in the Oval Office further undermined US equities’ long-held pre-eminence and re-emphasised the enduring importance of searching further afield.
Asian smaller companies might be just about as distantly removed from US mega-caps as it is possible to get. Amid further reminders of the merits of diversifying investments across multiple dimensions – including industries, sectors, market capitalisations and geographies – ever more investors are likely to acknowledge the appeal of the region’s hidden gems.
Gabriel Sacks is Lead Manager of Aberdeen Asia Focus plc.
