Invesco Asia Dragon Trust Q1 2026: Long-term value investing amid global volatility

At a glance: The war in the Middle East has been destabilising for Asian stock markets, causing investor anxiety and significant movement in share prices. It underscores the value of finding resilient companies that can still perform when financial markets are under pressure.

What has affected Asian markets in the first quarter 2026?

Asian markets had a strong start to 2026, outpacing broader global stock markets as investors continued to look beyond the US for growth¹. Korea and Taiwan led the way, on the back of robust demand for semiconductors and memory chips² as the AI infrastructure build-out continued at pace.³ China was weaker, but there were tentative signs of improvement in its property market, which is key to unlocking consumer growth across the country.⁴

However, this early strength was derailed by the US/Israeli incursions into Iran. While not directly participating in the war, Asia cannot be immune. China and India are major importers of oil and their economies are both sensitive to high oil prices and any disruption in supply. While most Asian markets are still ahead for the year to date, they have seen volatility over the past two weeks. Korean and Taiwanese markets have been particularly hard-hit, as investors took profits⁵.

What does the conflict in the Middle East mean for long-term investors?

The short-term volatility is uncomfortable, but the greater question is on the longer-term impact of the crisis. Will it affect economic growth across Asia, and ultimately the outlook for the businesses we hold in the portfolio?

China has enough oil to see it through several months of disruption, so the impact of the Middle East crisis will depend on how long it endures. However, it reinforces the wisdom of China’s rapid electrification programme, designed to build energy self-sufficiency. China’s development of renewables is forecast to deliver energy self-sufficiency of 84.6% in 2026. In the long-term, this should help insulate its economy from global supply volatility.⁶

Other countries are more vulnerable. India depends on Gulf nations for oil and gas. They are a major trading partner and a source of foreign investment⁷. The Invesco Asia Dragon Trust already has a relatively low weighting to India companies - valuations are expensive, which makes it difficult for a value-focused trust to find compelling opportunities.

What do recent events mean for Invesco Asia Dragon Trust?

Although oil prices may stay high and increase costs for some companies, our conservative estimates and our underweight positioning to net energy importers such as India, Korea and Taiwan means that the recent tumult has not materially affected the companies in the portfolio. Taking a longer-term view, we would hope it wouldn’t significantly impact the burgeoning global demand for semiconductors, for example, or the global memory shortage, which have helped companies in our portfolio over the past 12 months.⁸ Nor should it affect some of the extraordinary technology development going on in China, to which companies in our portfolio are exposed. If anything, the recent developments may accelerate the region’s determination to be self-reliant. As always, the market tumult may lead to better entry points.

Perspective

This is a difficult moment for global stock markets. It has exposed some of the strategic problems of many Western nations, which remain dependent on the oil price. These problems exist in Asia, but there is a concerted long-term strategy to increase self-reliance. There is a supportive economic backdrop in Asia⁹ and Asian equities are not, in our view, as ambitiously valued as their US peers.¹⁰ Over the next few months, this may offer some defence against market volatility.