One portfolio manager likes Japan on the developed side of Asia, ‘where there has been a lot of focus on corporate reform benefiting shareholders, especially minority shareholders like we are as mutual funds.’CHUNYIP WONG/AFP/Getty Images
Alan Greenspan famously remarked in 1996 that the U.S. market was undergoing a bout of “irrational exuberance.” It would take another five years before the dot-com bubble burst.
“Equity markets can outperform for a significant period of time before topping out,” notes Jay Nash, portfolio manager and senior wealth advisor with Nash Family Wealth Management at National Bank Financial Wealth Management in London, Ont.
“We seem to again be in a period in which investors are very focused on a certain area,” says Mr. Nash, pointing to the dot-com-like exuberance for equities tied to artificial intelligence.
AI has helped lift the U.S. benchmark index as a whole. Still, a broad outperformance among U.S. equities in recent years has introduced concentration risk in many portfolios if valuations can’t be sustained.
“Having that diversity outside of the U.S. and into other markets is absolutely critical, because those names and themes will top out at some point,” Mr. Nash says.
Money managers have spent the better part of 2025 discussing ways to diversify away from U.S.-listed stocks, which account for almost three-quarters of total global market capitalization today, according to the MSCI World Index. That’s up from about half from 2010 to 2020 (the U.S. weighting started to creep higher during the pandemic).
U.S. equities are currently trading at more than 22 times forward earnings, which is expensive by their own standards and frothy compared with the multiples seen elsewhere, particularly in Asia, where Chinese equities are valued at 15.8 times. The TOPIX benchmark in Japan trades at 16 times (although the Nikkei is also expensive, at 22 times).
That’s perhaps why the team at Rosenberg Research is constructive on several Asian markets, particularly Singapore. At just more than 15 times forward earnings, the city-state island’s benchmark index “offers affordable valuations alongside strong macro fundamentals, making it a useful source of international diversification,” the company wrote in a recent note.
“Within Asia, most pundits focus on China, Hong Kong, and Korea – but they overlook smaller markets, such as Singapore, which stands out as having the most compelling risk-reward attributes at the current time."
ASEAN bloc potential
Chris Lai, portfolio manager on the RBC Asian Equity team at RBC Global Asset Management in Hong Kong, says they’re also bullish on Asia.
“There are several Asian markets we like on a longer-term view,” Mr. Lai says.
He likes Japan on the developed side of Asia, “where there has been a lot of focus on corporate reform benefiting shareholders, especially minority shareholders like we are as mutual funds.”
He cites Taiwan as a leader in information technology on the hardware side and likes ASEAN markets (Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam), in general
He notes Singapore is the financial hub for the ASEAN bloc, which is undergoing a broad societal shift in urbanization, education, and middle-income growth.
“It is kind of where China was 10 to 15 years ago,” Mr Lai says.
How to invest in Asia
The key question for Canadians is how best to access foreign markets.
Some index trackers offer a degree of targeted, passive exposure, including Vanguard FTSE Developed Asia Pacific All Cap Index ETF VA-T, Global X FTSE Southeast Asia ETF ASEA-A, and iShares Core MSCI Emerging Markets IMI Index ETF XEC-T.
Canadian depository receipts (CDRs), a relatively new and growing class of single-stock exposures to major international equities, also offer a relatively cost-effective means of achieving a foreign-based allocation.
BMO Global Asset Management offers CDRs for nine blue-chip Japanese stocks, such as Toyota Motor Corp. TOYM-NE and SoftBank Group Corp. SFTB-NE. But the number of CDRs available for other Asian equities remains quite limited, at least for now.
Currency considerations should also be weighed if an ETF or fund isn’t hedged back to the Canadian dollar, Mr. Nash says, noting that foreign-exchange rates could trim or even wipe out returns.
All of these factors are why Mr. Nash prefers to invest in foreign equities for clients via active managers with global or region-specific mandates.
“The fact is, very few of us have a clean window as to what’s going on in those countries and what could influence the companies you might choose to hold directly,” Mr. Nash says. “Trying to thin slice into those areas introduces a very high level of risk for most investors.”
He says active management with discretionary models, “where the weighting toward international can be ramped up when options present themselves,” is the most practical route for most Canadian investors.