Wed, Apr 29, 2026 page7

• AI boom drowns out war fears to fuel Asia’s great market divide

  • By Subhadip Sircar and Abhishek Vishnoi / Bloomberg
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  Asia’s markets are behaving as though two different worlds exist at once.

  In South and Southeast Asia, higher oil prices are straining trade balances and sending stocks tumbling in India, Indonesia and the Philippines. In North Asia, enthusiasm for chipmakers and artificial intelligence (AI) companies is driving equity benchmarks in Taiwan and South Korea to repeated record highs with little regard for the war in the Middle East.

  The divergence highlights two competing narratives in global markets, with investors punishing economies exposed to higher energy costs while looking past near-term geopolitical risks if they can gain exposure to industries seen as critical to future growth. With the US and Iran making little progress toward talks and control of the Strait of Hormuz unresolved, the risk of prolonged energy disruption is paving the way for further divergence in Asia’s markets.

  “It’s mainly the lack of AI” that is exacerbating South Asia’s underperformance compared with their North Asian tech-led peers, said Marvin Chen, a strategist at Bloomberg Intelligence. “On oil, [South] Korea, Taiwan and Japan are just as dependent. It may be a structural issue that South Asia may need to proactively address by finding ways to fit in tighter with the regional tech supply chain.”

  When the Iran conflict broke out in late February, markets across Asia sold off in unison as higher oil prices hit the region’s import-dependent economies. However, as it dragged on, investors grew weary and shifted back to the pre-war trade of buying AI-linked stocks.

  North Asia has mostly erased its losses since the conflict. Taiwan’s TAIEX is up almost 10 percent since the war — the best performance among major markets — while South Korea’s KOSPI has gained about 4 percent. China’s CSI 300 and Japan’s Nikkei 225 also edged higher.

  Elsewhere, the performance is weaker. India’s NIFTY 50 has fallen about 5 percent, and the MSCI ASEAN Index is down about 7 percent, with benchmarks in the Philippines and Indonesia each dropping more than 10 percent.

  North Asia’s resilience rests in the fact that its markets are dominated by companies embedded in the global semiconductor supply chain, the backbone of the AI boom. Firms such as Taiwan Semiconductor Manufacturing Co, Samsung Electronics Co and SK Hynix Inc are benefiting from a surge in demand that — for now — appears relatively insulated from geopolitical risks.?

  In contrast, South and Southeast Asia are grappling with higher crude prices feeding into inflation, eroding current-account balances and weakening currencies. Those pressures leave policymakers with less room to respond. Without a comparable technology-driven story to attract inflows, markets in those regions have lagged.

  Currencies largely tell a similar story. The New Taiwan dollar and the Chinese yuan have been relatively stable, while those in India and parts of Southeast Asia have come under pressure.

  Three factors are driving the divergence: greater exposure to the energy shock in India and Southeast Asia, which have fewer buffers than North Asia; stronger fiscal positions in the north; and the AI boom, which is supporting growth and markets in North Asia, but offering little lift to India and Southeast Asia, said Sonal Varma, Asia ex-Japan chief economist at Nomura Holdings Inc.

  There are, however, some nuances. In Southeast Asia, Malaysia has been partially shielded by its status as a net exporter of oil, helping its currency hold up better than its neighbors. Singapore bonds, currency and stocks have also weathered the Iran war better than peers, thanks to haven flows.

  South Korea, despite strong equity performance, has seen weaker bond and currency trends because of its vulnerability to the energy shock. Seoul has already rolled out emergency measures, including a fuel price cap — the first in almost three decades — along with expanded fuel tax cuts and financial support programs to curb inflationary pressures.

  Varma said some of the brokerage’s favorite trades on the divergence include going long the euro against the rupee, long the Singapore dollar versus the Indonesian rupiah, and taking receive positions in Thailand and South Korea.

  China also stands out for its resilience to the Iran shock, despite being the world’s biggest oil importer. The country’s dominance in renewable energy and its push toward electric vehicles should help cushion the impact of higher fuel prices. Chinese bonds have outperformed regional peers, while the yuan is now trading close to its strongest level since early 2023.

  The next test for the AI trade will come from hyperscalers’ earnings such as Meta Platforms Inc and Microsoft Corp starting next week. Investors will watch their capital expenditure plans, as questions grow over how long the spending can be sustained relative to cash flow, Christopher Wood, the global head of equity strategy at Jefferies Financial Group Inc, wrote in a note.

  “This divergence can persist as long as energy prices remain elevated and capital continues to favor technology-led economies with stronger buffers,” said Gary Tan, a portfolio manager at Allspring Global Investments.

  This makes “Asia Ground Zero for the competing narratives of long-term, tech-driven disruption versus near-term, war-driven macro stress,” Tan said.
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