UBS Equities-APAC Sustainability _2026 Outlook - The Great Bifurcation_ G...-119737780

ab14 January 2026Global ResearchAPAC Sustainability 2026 Outlook - The Great Bifurcation The macro matters: from policy to system constraintsThe global transition enters 2026 in a more complex and disorderly phase. The era of coordinated, policy-led transition is giving way to one defined by geopolitical fragmentation, policy uncertainty, Al-driven power demand, and China's export-led green involution. While technology costs continue to fall, the systems required to deploy them at scale are under strain: Al is introducing dense, price-insensitive loads; climate impacts are raising the cost of resilience; and China's global expansion is compressing margins across upstream manufacturing. Together, these forces are driving a technology bifurcation - between low cost-curve solutions that scale through price deflation and Al-halo and system-critical technologies where value accrues to reliability, flexibility, and integration rather than lowest upfront cost.What the bifurcation favoursWe rotate toward system bottlenecks beneficiaries, integration layers, and duration-driven scarcity, and away from dilutive volume growth. Grids must expand and modernise to accommodate electrification and Al load; storage becomes essential to manage volatility and peak stress; efficiency and cooling shift from optimisation to necessity as power constraints bind; and industrial electrification and automation lower energy costs and reduce import dependence. Multi-modal EVs - two-wheelers, buses, and commercial fleets - emerge as economically durable forms of transport electrification, while passenger EVs face intensifying margin pressure. In renewables, value continues to migrate downstream to platforms, integrators, and system enablers, rather than upstream. Flexible generation retains importance where firm capacity, speed-to-power, and reliability are required to stabilise stressed systems. How to position - updated APAC Best Ideas ListWe deepen our exposure to grid and Al power infra., with added exposure to transformers, power electronics, cooling, and control systems that monetise electrification and Al load growth (Hyosung Heavy, Delta Electronics, Envicool, Kehua, Jentech, Advantech). We also expand exposure to Transition Materials in copper, lithium, graphite, and rare earths (Zijin, Jiangxi, Capstone, Tianqi, Ganfeng, Lynas, Talga). In parallel, we have deepened exposure to industrial electrification and automation, where efficiency, increased output and labour substitution drive adoption (Keyence, Fanuc, Yaskawa Electric, Siemens, Thermax), and to selective system operators and flexible generation. Taken together, these additions increase exposure to pricing power, system resilience, and defensive demand growth.Where we turn more cautiousWe lower exposure where returns are increasingly competed away or contingent on policy. This includes upstream solar, where expectations of supply consolidation have not been realised despite anti-involution policies;