In Asia, it is the best of times, it is the worst of times. The crisis in the Strait of Hormuz is hammering energy importers hard, even as parts of the region emerge as the principal winners of the mania surrounding AI. That pushed the MSCI Emerging Markets Asia index up 15% in the first five months of the year.
Yet on currency markets things are grim. Talk is turning to the 1997 Asian financial crisis, when large trade deficits caused investor confidence to “evaporate within months”, triggering “deep recessions” and political tumult, say Swati Pandey and Claire Jiao on Bloomberg. Indonesia, the Philippines and India look especially vulnerable to capital outflows. Respectively, their currencies have shed 8.5%, 9.5% and 10.5% against the US dollar over the past 12 months.
The once-promising Philippines has been hit especially hard, says Daniel Moss, also on Bloomberg. The country was a Southeast Asian growth star in the 2010s. Now inflation is running at 7% and heading for double digits, a huge surge from 2% in January. The local PSEi share index is down 5.6% over the past three months. The Philippines' difficulties could be a taste of things to come elsewhere.
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But nowhere are Asia's contradictions as stark as in South Korea. The won is trading at its lowest level against the dollar since the 2008 financial crisis, say William Sandlund and Daniel Tudor in the Financial Times. Yet puzzlingly, Korea is enjoying a record trade surplus because of insatiable demand for its computer chips. An export boom should be strengthening the won, not weakening it.
Paradoxically, one explanation may be the blistering pace of an Asian stock market boom. The Kospi index has doubled since the start of the year, driven by large runs at chip specialists Samsung and SK Hynix. That has forced fund managers to sell to avoid overexposure, with foreign investors offloading a record net $79 billion of local equities this year.
Taiwan's Taiex index has gained 58% this year, seeing it surpass India to become the world's fifth-largest stock market. Almost all of the world's high-end chips are made by Taiwan's TSMC. The island, which is only slightly larger than Belgium, now accounts for almost a quarter of the entire MSCI Emerging Markets index.
Investors in Asia should ‘buy the shovels’
When there's a gold rush, it's good if 30% of your economy is “based on shovel manufacturing”, says Joseph on Substack. Taiwanese GDP rose at an annualised pace of 23.6% in the final quarter of 2025. GDP has risen by almost a quarter since ChatGPT was launched in late 2022. Not everyone is benefiting from the boom – exporters are doing well while everybody else struggles. But there is no arguing with this modern growth “miracle”.
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