Investors have been shifting away from US equities and towards Asian shares, with the markets in Hong Kong, Japan and Korea expected to gain more as they present fair value and more upside potential compared to the highly volatile S&P500, which has been falling over the past three weeks.

As of March 10, the S&P500 index has declined by 8.6% from its February 19 peak – that’s almost a 10% drop that can be considered a market correction. Long-term US equity mutual funds saw outflows estimated at US$14.29 billion for the week ending February 26, according to the Investment Company Institute ( ICI ), indicating a shift in investor confidence.

On the other hand, Hang Seng Index ( HSI ) has been experiencing massive inflows, with mainland Chinese investors accounting for HK$185 billion ( US$24 billion ) in net purchases as of February 18, according to data from J.P. Morgan.

As of March 10, the Hong Kong benchmark has gained 21.20% year-to-date ( YTD ), while the Korea Composite Stock Price Index ( Kospi ) has risen 5.72%. In contrast, the S&P500 has dropped 1.4% over the same period.

Japan’s Nikkei 225 also declined by 7.54% YTD as of March 7, but analysts see a potential rebound, forecasting a rise to 40,000 points by the end of June, driven by an improved corporate outlook as the uncertainty over US tariffs is expected to have diminished.

Bright Asia outlook

These developments suggest a notable shift in investor preference from US equities to Asian markets, which asset managers attribute to a combination of US market challenges and brighter prospects in these three Asian markets.

As of March 11, Hong Kong stocks are considered at fair value with an estimated price-to-earnings ( P/E ) ratio of 14.57, which aligns closely with the five-year average P/E interval of 14.20 to 16.30.

Nikkei 225 stocks, currently trading close to their three-year average P/E ratio of 15.6x, are also considered fairly valued with potential for growth in the medium to long term.

The P/E of Kospi stocks as of March 11 was 9.96, below its their-year P/E range of 9.33 to 11.72, suggesting that they are currently undervalued relative to their recent historical valuations.

Apart from the market challenges facing US equities and the relatively attractive valuations of Asian markets, investors are seeking diversification by allocating more to Asian equities, which currently provide exposure to different economic cycles and growth opportunities that generally align with strategies to balance portfolios amid global uncertainties.

The HSI’s strong rally has been attributed by analysts to the positive sentiment of mainland investors, optimism in the Chinese and Hong Kong technology sector following DeepSeek’s breakthrough in the AI arena, as well as renewed confidence in the mainland’s private sector following recent pronouncements by President Xi Jinping.