By Ying Xian Wong

Investors hunting for returns should look more closely at Asian markets, which offer growth at attractive valuations, says a top executive at Principal Asset Management.

While trades elsewhere look crowded, Asia remains underowned, said Christopher Leow, Singapore chief executive at the investment-management arm of Nasdaq-listed Principal Financial Group.

Excluding Japan, Asian markets account for about 11% of global equities benchmarks, but surveys suggest portfolio allocations stand at 6%, indicating a significant underweight position among global investors, Leow said.

Those who aren't investing in Asia are missing out, said Leow, who heads up Asia equities at Principal Asset Management. The firm manages $12 billion in Asian equities, and as of end-March had about $578 billion in total assets under management.

Asia is home to a wealth of leading technology and hardware companies that are benefiting from strong artificial-intelligence-driven capital spending, generating robust earnings growth, he added.

The AI boom has lifted shares of Asian tech giants such as South Korea's Samsung Electronics and SK Hynix, and Taiwan Semiconductor Manufacturing Co., spurring tech-heavy indexes higher.

Leow expects tech to remain the core driver for Asia over the next six months, with momentum closely tied to the sustainability of spending by large data-center companies.

Over 2026-2027, he projects that Asian corporate earnings--excluding Japan--will expand at a compound annual growth rate in the mid-30% range. And with companies trading at around 11 times price-to-earnings, valuations look reasonable.

"Investors should seriously consider investing in Asia. Asia is an asset," he said.

AI trades aside, Leow sees another tailwind in a potential U.S.-Iran peace agreement, which would catalyze a broader, more resilient rally in Asia.

As oil prices cool and supply chains normalize, investment opportunities in Asia should expand beyond megacap tech into sectors such as defense and energy security that are now also seeing rising global expenditure, he said.

This could directly benefit industries such as power, electrical machinery and equipment, battery manufacturing, and select commodities like copper, Leow added. However, if geopolitical tensions don't normalize, Asian markets will likely remain narrowly driven by technology, he added.

Rather than chasing specific countries, Leow suggested investors take a bottom-up approach to the region, identifying winners based on where long-term capital expenditure is actively flowing.

For example, renewed focus on energy security and renewable storage caused by the Middle East conflict benefits battery manufacturers, many of which are in China and South Korea. By prioritizing structural themes over geographic labels, investors can uncover high-performing companies that offer diversification and a strategic hedge against external economic shocks, Leow said.

Despite growing concerns about the Federal Reserve raising interest rates, Leow isn't worried about that derailing Asian equities, as markets have already priced in up to two rate hikes this year.

The Fed's impact on the region is nuanced and a lot depends on the broader economic context driving policy, the investment manager said. If the Fed is simply raising rates to cool demand-driven inflation, the effect on Asian markets will be manageable.

Leow's focus is on whether Fed tightening will curb economic momentum in the U.S., which he sees as unlikely.

"In my view, they will try to sustain growth," he said, "tapping on the brakes, so to speak, by raising rates one time this year."

Write to Ying Xian Wong at yingxian.wong@wsj.com