AS doubts mount over Asia's artificial intelligence boom, some of the region's strongest returns are building far from the hype.
While tech dominates the headlines, old-economy mainstays are also key drivers of the broader market story.
Technology accounts for six of Asia's 15 best-performing market sectors this year thus far. But the remaining nine tell a non-tech story anchored in financials, energy, industrials and process industries.
Admittedly, some of these themes overlap with the AI capital expenditure juggernaut. For example, investments in power generation, grid infrastructure and industrial cooling are clearly being propelled by data centre needs.
But AI is not the only driver of these old-economy investment sweet spots, as geopolitical unrest and high energy prices are also playing a role.
Fears about a slowdown in the tech boom may rattle Asian markets—as we saw last week—but they will not necessarily bring the Asian surge to a screeching halt.
Rising global defence spending has been a major investment driver worldwide this year, as military tensions escalate, most notably in the Middle East and Europe.
This trend has been building ever since Russia's invasion of Ukraine in 2022 and has skyrocketed as United States President Donald Trump has put more pressure on European allies to increase defence spending.
North Atlantic Treaty Organisation (Nato) members, which account for 65 per cent of global defence expenditure, committed in June last year to raise their annual defence spending to five per cent of gross domestic product by 2035. Global defence spending represented only 2.4 per cent of global GDP last year.
The widening conflict in the Middle East, which escalated following the US-Israeli strikes on Iran on Feb 28, has also highlighted the vulnerability of Gulf countries.
Asian defence manufacturers stand to gain from this global defence spending boom as Western capacity constraints potentially give Asian rivals an edge in delivery times and prices for comparable equipment.
According to the Stockholm International Peace Research Institute, South Korea supplied 8.6 per cent of all arms imported by European Nato members during 2021-2025, ahead of Israel's 7.7 per cent and France's 7.4 per cent.
This came as Europe's overall arms imports roughly tripled.
At the same time, "insourcing" of defence manufacturing—creating a homegrown military-industrial complex—is already a trend in several Asian nations.
India aims for 70 per cent defence "indigenisation" by next year, Indonesia seeks 60 per cent local content in defence equipment by 2030, and Vietnam is targeting 50 per cent domestic inputs in select armaments by 2030.
Increasing defence needs and military modernisation are also spurring a broader infrastructure buildout globally. This includes reinforced bridges, roads, ports and railways, which are needed to transport heavy equipment, alongside fortified energy grids, telecommunications services and cyber networks.
McKinsey forecasts US$106 trillion in global infrastructure investment through 2040, with Asia accounting for roughly 65 per cent of that.
The region's domestic industry has several advantages, including local ties, inexpensive state financing and integrated operations that can lower costs and speed delivery.
Asia's infrastructure buildout could be mammoth, too. Regional transport infrastructure alone could require investment of US$2.6 trillion annually through 2035, according to the Asian Transport Observatory and the Asian Development Bank.
The global drive for energy independence should also benefit Asia, the leader in clean energy technologies.
The stickiness of crude oil prices above US$100 a barrel—and the related shock closure of the Strait of Hormuz this year—should push more consumers, businesses and governments towards renewables, particularly solar power, battery energy storage, offshore wind and electric vehicles.
According to FactSet, Chinese electric vehicle makers BYD and Geely draw 43 per cent and 23 per cent of their respective revenue from abroad, while Chinese battery titan CATL generates 34 per cent of its revenue overseas.
Swapping AI exposure for heavy industry and state-backed defence does not eliminate risk—it merely trades tech valuation hype for other hazards.
Meanwhile, prolonged inflation, elevated energy prices and high interest rates could slow infrastructure buildouts and trigger corporate defaults.
And a truly massive AI pullback could have ripple effects across the region's markets.
Yet, for now, Asia's old economy continues to offer genuine substance beyond all the tech-driven hype.
Writing for Reuters, the writer is founder and CEO of Emmer Capital Partners Ltd
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