Old‑Economy Sectors Boost Asian Markets as AI Hype Fades

Asia's old‑economy sectors are outpacing the AI‑driven tech frenzy, delivering some of the strongest market returns in 2026. Technology accounts for six of the continent's 15 best‑performing sectors, while the other nine are led by financials, energy, industrials and process industries. Data‑centre demand pushes investment into power generation, grid upgrades and industrial cooling, but geopolitical unrest and high energy prices also fuel the surge. Global defence spending has risen sharply since Russia's 2022 invasion of Ukraine and after US President Donald Trump urged European allies to step up spending. NATO members, which hold 65% of worldwide defence outlays, pledged in June 2025 to lift annual defence budgets to 5% of GDP by 2035; global defence spend was 2.4% of GDP in 2025. The Middle‑East flare‑up following US‑Israeli strikes on Iran on Feb 28 has highlighted Gulf vulnerability, giving Asian defence makers an edge as western capacity tightens. South Korea supplied 8.6% of European NATO arms imports in 2021‑25, ahead of Israel (7.7%) and France (7.4%). India, Indonesia and Vietnam are pushing defence indigenisation to 70%, 60% and 50% respectively by the late 2020s. McKinsey projects $106 trillion of global infrastructure spend to 2040, with Asia taking about 65%; transport infrastructure alone may need $2.6 trillion a year through 2035, more than three times the 2020‑25 average. Order books of Larsen & Toubro, Hanwha Aerospace and China Railway Group now sit at several times their annual revenue, underscoring robust growth. Rising oil prices above $100 a barrel and the Strait of Hormuz closure push Asia’s clean‑energy leaders toward solar, batteries, offshore wind and EVs, though fierce domestic competition and US‑EU tariffs pressure margins. Companies with strong overseas sales—BYD (43% abroad), Geely (23%) and CATL (34%)—are better placed to offset these headwinds. Risks remain: government‑driven defence and infrastructure contracts can face delays, cost overruns and budget cuts, while inflation, high rates and a possible AI pullback could slow growth.## Context The shift toward defence, infrastructure and clean energy reflects broader geopolitical tension and a search for stable, long‑term returns beyond volatile tech valuations.