Investment Analysis: Asia Stock Market Overview – Week 39, 2025

Sector Review

Semiconductors and foundry are the region’s profit leaders. Taiwan Semiconductor’s double-digit growth, industry-leading margins and balance-sheet strength anchor the AI/HPC cycle, while MediaTek’s Android and edge-AI mix is improving. Samsung’s near-term upside hinges on DRAM/HBM share regain and foundry execution. Capital equipment is in digestion, with Tokyo Electron leveraged to the next leading-edge and packaging ramps; Advantest is riding an AI test super-cycle but with elevated expectations after a sharp rerating.

Internet platforms and software show a split. Tencent combines mid-teens revenue growth, high margins and strong cash generation with catalysts across games, ads and pragmatic AI investment. E-commerce is more mixed: PDD sustains mid-20s margins and massive cash, but regulatory and competitive intensity remain; JD’s thin margins and negative levered free cash flow keep it a show-me story. Meituan’s revenue is resilient but operating margin softness and earnings volatility weigh on sentiment.

Autos are two-speed. Toyota’s hybrid leadership and disciplined capex underpin margins and dividends while BEV ramps gradually. Korea’s Hyundai has solid profitability but tighter liquidity and negative operating cash flow to monitor. In China, BYD’s scale is offset by a price war pressuring margins and cash conversion; XPeng’s rapid growth still lacks sustainable profitability, leaving returns hostage to execution and funding cycles. Li Auto remains profitable with strong liquidity but softer near-term growth.

Financials are attractive for income and improving fee mix. DBS delivers high ROE, a 5%+ yield, and credible optionality from tokenized market infrastructure. HDFC Bank offers steady profitability with moderate growth, and Japan’s MUFG is broadening fee income with asset-management initiatives, though recent growth is mild. ICBC’s double-digit forward yield is policy-supported but exposed to NIM pressure and China macro.

Consumer, staples and healthcare are defensive but need catalysts. Kweichow Moutai’s fortress margins and net cash underpin a 3.5% yield and stability. Unilever Indonesia and Wilmar offer income but face soft growth and thin margins, with payout discipline a key watchpoint. CSL and Takeda are cash-generative biopharma defensives; both require clearer top-line acceleration and, for Takeda, better dividend coverage to re-rate.

TOP 5 Investment Picks

Taiwan Semiconductor Manufacturing Co. (2330.TW). TSMC combines 38.6% quarterly revenue growth with industry-leading margins (49.63% operating; 42.48% net) and a fortress balance sheet (cash 2,630B vs debt 1,010B; current ratio 2.37). AI/HPC demand and premium smartphones keep leading-edge utilization high, supporting strong OCF and disciplined capex. While export-control friction adds timing risk, end-demand is intact. ROE of 34.2% and consistent dividend capacity make this the region’s highest-quality secular compounder.

Tencent Holdings Ltd. (0700.HK). Tencent’s 14.5% y/y quarterly revenue growth, 32.58% operating margin and 29.54% net margin, alongside OCF of 283.33B and LFCF of 120.25B, underpin a robust multi-engine model across games, ads, fintech and cloud. Management’s pragmatic approach to AI compute and overseas expansion adds optionality without balance-sheet strain. With regulatory risk better understood and buybacks/dividends providing support, earnings compounding can drive total returns.

DBS Group Holdings Ltd. (D05.SI). DBS offers a blend of high-quality income and structural fee optionality. ROE is 16.81%, profit margin 51.0%, beta 0.51, and the forward dividend yield is 5.25% with a sustainable 61.72% payout. Tokenization initiatives with Franklin Templeton and Ripple could shift earnings mix toward fees, reducing dependence on rate cycles. Balance-sheet strength and measured growth support defensive carry with upside from platform economics.

AIA Group Ltd. (1299.HK). AIA marries structural insurance penetration with disciplined returns. Top-line is strong (+29.4% yoy in the latest quarter) with healthy profitability (23.76% profit margin; ROE 15.10%) and a forward P/E of 12.27x. Cash generation supports a 2.50% dividend yield at a 36.21% payout. While quarterly earnings were volatile, normalization as new business strain fades can unlock re-rating and dividend progression.

Toyota Motor Corp. (7203.T). Toyota’s hybrid leadership provides a profitable bridge through the EV transition. Operating and profit margins at 9.52% and 8.82% (ttm), solid OCF (4.89T) and a well-covered 3.21% forward dividend (27.68% payout) make for a resilient set-up. Execution on electrification, cost control and product cadence can stabilize earnings after the recent contraction, with low beta offering downside protection.

Honorable mentions: Samsung Electronics (005930.KS) for memory/HBM upcycle leverage and balance-sheet strength; PDD Holdings (PDD) for scale, mid-20s margins and cash-rich growth if regulatory risks remain manageable; Sony Group Corp. (6758.T) for diversified content, devices and AI-enabled tools with balance-sheet flexibility; Tokyo Electron Ltd. (8035.T) as a beneficiary of the next capex upturn across advanced nodes and packaging; MediaTek Inc. (2454.TW) for improving Android cycle, edge-AI mix and pristine balance sheet.

BOTTOM 5 Investment Risks

XPeng Inc. (XPEV). Despite 125.3% quarterly revenue growth, margins remain negative (profit margin −7.10%; operating margin −5.30%) and beta is elevated at 2.50. The path to profitability hinges on manufacturing efficiency and software monetization amid fierce competition and policy sensitivity. Liquidity is adequate, but execution risk is high and equity is likely to remain volatile and news-driven.

BYD Company Ltd. (1211.HK). Scale and integration are strengths, yet the first profit drop in three years underscores a price war compressing earnings. Margins are thin (2.00% operating; 4.97% net), levered free cash flow is negative, and the current ratio at 0.76 highlights working-capital strain. Berkshire’s exit dented sentiment, and absent clear margin stabilization, rallies may fade.

SoftBank Group Corp. (9984.T). Shares have doubled, but the balance sheet is leveraged (debt 19.65T vs cash 5.91T), operating cash flow is negative, and funding costs are rising. The thesis relies on asset monetization and AI portfolio upside, making returns heavily execution- and market-dependent. Volatility could reassert if exits, marks or refinancing underwhelm.

Meituan (3690.HK). Revenue growth remains 11.70% yoy, but operating margin is slightly negative (−0.28% ttm) and quarterly earnings fell 96.8% yoy. Competitive intensity in local services is squeezing unit economics, and despite a strong cash balance, the market is demanding sustainable operating leverage. Without clearer profitability, valuation may stay range-bound near cycle lows.

JD.com Inc. (JD). Strong topline momentum (+22.40% quarterly revenue growth) is offset by thin profitability (−0.30% operating margin; 3.06% net) and negative levered free cash flow (−14.16B). While cash on hand is substantial and a potential Singapore REIT could unlock value, the story hinges on visible margin expansion and FCF coverage of the dividend, which are not yet evident.

Watchlist risks: Industrial and Commercial Bank of China (1398.HK) for NIM pressure and macro/property exposure despite a high dividend; Hyundai Motor (005380.KS) for negative operating cash flow and tight liquidity amidst EV/software execution risk; Takeda Pharmaceutical (4502.T) for high dividend payout versus earnings and top-line contraction; Wilmar International (F34.SI) for thin margins and leverage despite a low valuation; Advantest Corp. (6857.T) for valuation risk after a 130% rally if AI test intensity moderates.

Key Investment Themes

AI infrastructure remains the dominant profit pool, favoring scale leaders with pricing power and cash such as TSMC, while second-derivative beneficiaries include capital equipment and select component suppliers. In financials, high-quality regional banks offering 4%–6% yields with solid ROE and digital optionality, exemplified by DBS, provide defensive carry with upside from fee mix improvements. The auto sector is a story of hybrid profitability versus EV price wars: Japanese incumbents like Toyota are better positioned than China’s volume players facing ASP pressure.

China platform exposure requires selectivity. Tencent’s diversified cash engines and pragmatic AI strategy contrast with e-commerce names where unit economics and regulatory intensity drive dispersion. Across defensives, investors are rewarding cash-backed dividends with credible coverage; names like Moutai and AIA can compound if growth normalizes. Finally, free-cash-flow quality and balance-sheet strength are the common denominator: companies that can self-fund growth, maintain disciplined payouts, and navigate policy and supply-chain frictions are best placed to deliver through 2028.

This article is not investment advice. Investing in stocks carries risks and you should conduct your own research before making any financial decisions. Note also that this review per region is based only on the companies followed in this magazine (see the Stocks in the Finance section).