Nomura: Winners and Losers under Asia's Reconfiguration

Overview

This report systematically analyzes the profound restructuring of the Asian economic system under the叠加 of three forces: geopolitical transition, China's manufacturing upgrade (China Shock 2.0), and the AI revolution. The report points out that the growth model relying on cheap labor and globalized division of labor over the past three decades is no longer sustainable. The new growth logic shifts towards AI industry chain positioning, energy security, defense autonomy, and supply chain geopolitical alignment. Through eleven thematic frameworks, the report quantitatively assesses the relative positions of various economies in this round of restructuring, identifies structural winners and losers, and provides investment directions across asset classes.

Core views

Geopolitical Restructuring of Trade and FDI: Asian supply chains are shifting from efficiency-first to security and geopolitical alignment-first. Data shows that although global FDI inflows declined by 11%, ASEAN's FDI inflows in 2024 grew by 8.5% against the trend. Intra-regional intermediate goods trade has significantly recovered since 2022, indicating strengthened internal links within production networks. In the FDI attractiveness scorecard, India (market size), Singapore (business environment), Vietnam, and Malaysia (low geopolitical risk) rank high; meanwhile, US security allies such as Japan, South Korea, and Taiwan face pressure for investment in the US. The signing of trade agreements is accelerating, with countries reducing their dependence on the single US market through diversification. Differentiated Impact of China Shock 2.0: Unlike the low-end manufacturing shock of the early 2000s, this round of 'China Shock 2.0' concentrates on high-tech and high value-added fields. Between 2020-2025, China's EV, lithium battery, and PV exports grew by 349%, and its global shipbuilding share soared from 35% to 56.1%. Based on the vulnerability scorecard, Indonesia, Thailand, and the Philippines face the highest risks due to their reliance on low value-added labor-intensive industries and limited fiscal space; whereas Malaysia, India, and Vietnam possess stronger resilience thanks to supply chain diversification and climbing up the value chain. Notably, advantageous industries of developed economies such as South Korean shipbuilding and Japanese construction machinery are also facing fierce competition from Chinese companies. AI Reshaping Growth Models and National Stratification: Asia's growth engines are shifting from traditional manufacturing to AI industry chain positioning. The report constructs an 'AI Production-AI Application' matrix: Taiwan, South Korea, China, and Malaysia belong to the 'Production-led' winners, directly benefiting from hardware exports and capital expenditure; Singapore and Japan belong to the 'Application-led' winners, benefiting from productivity improvements and services; China and South Korea have dual advantages but each has shortcomings; India, Indonesia, the Philippines, and Thailand are currently in the 'Long-term Option' group. If they cannot quickly make up for infrastructure and skill gaps, they may lose competitive advantage before establishing their own capabilities. This differentiation will directly affect monetary policy: Central banks in South Korea and Taiwan may hike rates 4-5 times in the next 12 months to cope with AI-driven growth and rising asset prices. Energy Security and Critical Mineral Gaming: Conflicts in the Middle East have intensified Asia's emphasis on energy security. Nomura's Asia Energy Security Index shows that China tops the list due to diversified energy structure, leadership in renewable energy, and strategic reserves; New Zealand and Thailand rank at the bottom. In the field of critical minerals, despite international efforts to diversify, the IEA predicts that China's rare earth refining share will remain as high as 73-75% by 2035-40. Australia will expand its share in mining, while the US, Malaysia, and India will become emerging participants in processing. In terms of green technology exports, China holds a 40% market share and 80% of manufacturing capacity, while ASEAN and India also rank among the top in solar panel exports. Surge in Defense Spending and Localization Opportunities: Geopolitical tensions have triggered a regional arms race, with military spending in Asia-Pacific and Oceania accounting for 23.6% of the global total. Australia plans to raise defense spending to 3% of GDP by 2033, Japan is accelerating to achieve the 2% target, South Korea has committed to reaching 3.5% as soon as possible, and Taiwan aims for 5% by 2030. Asian countries are rapidly advancing defense localization and exports; the region's share of global weapons exports has risen from 6% in 2011 to 9.5% in 2025. South Korea, Japan, and India are leaders in this transformation, but Japan, India, and some ASEAN countries face fiscal constraints and need to balance defense with other expenditures. Sustainability of China's Export Model and External Constraints: China's export-oriented growth still has strong momentum in the short term, driven by global AI infrastructure, asymmetric effects of energy shocks, and domestic deflation. However, in the medium to long term, as China accounts for about 30% of global manufacturing value-added and has a merchandise trade surplus of $1.2 trillion, the absorption capacity of trading partners is approaching saturation, and protectionist reactions are spreading outward from the US. The report believes that this model will not reverse abruptly, but will face increasingly intense external friction. Final adjustments are more likely to be driven by deteriorating terms of trade rather than active policy choices. Cross-border e-commerce platforms have demonstrated structural resilience through flexible model adjustments and geographic diversification. Japan's Economic Revival and De-dollarization Trends: Japan's economy is regaining vitality due to internal transformation, manifested in the 'three rises' (wages, prices, interest rates), labor-saving capital expenditure, and synchronized wage increases. The report is bullish on the returns of 30-year JGBs hedged for exchange rates, expecting the Yen to strengthen to USD/JPY 145 by end-2027. In the stock market, century-old enterprises, physical AI, content, and brand overseas expansion are core themes. Meanwhile, the de-dollarization process is accelerating, evidenced by fund flows to Europe/Japan/some Asian markets, central banks' structural reduction of USD holdings, rising gold demand, increased RMB settlement, and the rise of Singapore as a relative safe haven. In the medium term, the USD faces depreciation pressure.

Analysis framework

The report adopts a combination of 'multi-thematic structured analysis + quantitative scorecards'. First, the grand proposition of 'Asia Reconfiguration' is broken down into 11 sub-themes that can be analyzed independently yet are interconnected: trade, FDI, China Shock, AI, energy, rare earths, defense, China's exports, Japan, de-dollarization, and interest rate transmission, ensuring comprehensive coverage and clear logic. Secondly, quantitative assessment tools are constructed under each sub-theme, such as the comprehensive FDI attractiveness score (weighted by 9 indicators including market size, business environment, geopolitical risk, etc.), the China Shock vulnerability scorecard (including four dimensions: China import penetration rate, exposed industry proportion, manufacturing competitiveness, and fiscal space), AI production and application scores (combining subjective analyst assessments with objective data such as semiconductor exposure, data center capacity, and government AI readiness index), and the Energy Security Index (integrating energy structure diversification, supplier concentration HHI, strategic reserve days, etc.). These scorecards translate qualitative judgments into quantitative results comparable across countries, avoiding subjective assumptions. Finally, macro conclusions are mapped to specific asset classes: each theme comes with a list of 'potential stock beneficiaries', and clear directions are given for interest rate, foreign exchange, and bond strategies (such as going long on South Korea-Thailand interest rate swaps, shorting Indonesian Rupiah/Philippine Peso/Indian Rupee, and going long on 30-year JGBs), achieving a closed loop from macro narrative to investment decision.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Rebalancing Analysis of China Shock 2.0

  The report not only focuses on the surge in China's supply-side exports (such as EVs/batteries/PV) but also particularly emphasizes demand-side absorption capacity constraints. When China accounts for 30% of global manufacturing value-added and has a surplus of $1.2 trillion, trading partners' absorption capacity approaches saturation, constituting the fundamental external constraint making the export model unsustainable. This two-sided supply-demand analysis avoids unidirectional linear extrapolation.

• Macroeconomic framework

  AI Production-Application Matrix Classification Method

  The report innovatively classifies countries into four categories (Double Winners, Production-led, Application-led, Long-term Options) based on 'AI Production Capacity' and 'AI Application Capacity' dimensions, rather than simply ranking by GDP or tech level. This framework reveals differences in paths and timing for different economies to benefit from AI: production countries enjoy hardware export dividends first, application countries gain productivity improvements later, and option countries may be left behind if they do not act.

• Quantitative/Factor/Portfolio TheoryBeta/alpha analysis

  Dynamic Monitoring of Asian Interest Rates' Beta to US Treasuries

  The report points out that the Beta of Asian interest rates to 10-year US Treasuries is not constant. The average value from 2020-2026 (0.40) is significantly lower than that from 2015-2019 (0.60), but it rebounded to 0.68 in 2026. This means that during the cycle of rising US Treasury yields, the 'decoupling' degree of Asian bond markets is weakening. Investors need to dynamically adjust hedge ratios rather than statically applying historical low Beta experiences.

• Corporate Fundamentals and Financial Framework

  Multi-dimensional Country Scorecard Methodology

  The report constructs weighted Z-score comprehensive scorecards in multiple dimensions such as FDI attractiveness, China Shock vulnerability, energy security, and DM interest rate vulnerability. This method standardizes heterogeneous indicators for cross-country horizontal comparison and reflects research priorities through weight setting (e.g., 'Change in China Import Penetration' accounts for 55% weight in China Shock vulnerability), giving qualitative judgments a reproducible quantitative basis.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Malaysia Real Estate/Construction/Utilities/Tech Stocks (Sime Darby Property, Eco World, Sunway Construction, Gamuda, Tenaga, Solarvest, OSAT/EMS manufacturers)

  Direct beneficiaries of trade restructuring and FDI inflows, undertaking the transfer of semiconductor and data center industry chains

  Strengths

  Low geopolitical risk, high FDI attractiveness score, strengthened hub status for regional intermediate goods trade

  Comparison

  Compared to Thailand/Indonesia, Malaysia has greater advantages in climbing the value chain and data center investment

  Risks

  Intensifying uncertainty in global trade policies, rising domestic labor costs

• India Auto/Pharma/EMS/Power Equipment Stocks (Hyundai Motor, Dr Reddy's, GE Vernova T&D India, CG Power, etc.)

  Beneficiaries of electronics manufacturing and service sector exports under the China+1 trend

  Strengths

  Large market size, highest FDI attractiveness score, doubled electronic export share, GCC expansion

  Weaknesses

  Global commodity export share still stagnant at ~1.7%, low AI production/application scores placing it in the 'Long-term Option' group

  Comparison

  Compared to ASEAN countries, India has made significant breakthroughs in electronics but still lags in overall manufacturing competitiveness

  Risks

  Infrastructure bottlenecks, skill gaps, and lagging AI capability building may lead to loss of competitive advantage

• China Battery/PV/Construction Machinery/Shipbuilding Leaders (BYD, CATL, Longi, SANY Heavy, CSSC, etc.)

  Core carriers of China Shock 2.0, direct beneficiaries of overseas expansion and increased global market share

  Strengths

  Economies of scale, full industry chain control, accounting for 80% of global green technology manufacturing capacity

  Weaknesses

  Facing increasingly widespread trade restrictions and anti-dumping measures; concerns about oversupply in the solar sector

  Comparison

  Overwhelming advantages in cost and capacity compared to Japanese and South Korean peers, but still questioned in terms of high-end brands and compliance

  Risks

  Escalating trade frictions, tighter overseas regulations, capacity oversupply in some sectors suppressing profits

• Taiwan/South Korea AI Hardware Chain (TSMC, MediaTek, SK Hynix, Samsung, SEMCO, etc.)

  AI production-led winners, directly benefiting from global AI capital expenditure and hardware exports

  Strengths

  Technological leadership, irreplaceable supply chain, leading AI production scores

  Weaknesses

  South Korea faces challenges in domestic AI diffusion; China is constrained by access to advanced hardware

  Comparison

  Taiwan has more prominent advantages in wafer foundry and design; South Korea leads in memory and components

  Risks

  Geopolitical risks, intensified technology controls, cyclical fluctuations

• South Korea/Japan/India Defense Industry Stocks (Hyundai Rotem, Hanwha Aerospace, Mitsubishi Heavy Industries, Hindustan Aeronautics, etc.)

  Beneficiaries of surging regional defense spending and localization/export expansion

  Strengths

  Clear government commitment to increasing defense budgets, rapidly rising weapons export shares, mature local supply chains

  Weaknesses

  Japan/India face fiscal constraints, needing to balance defense with other expenditures

  Comparison

  South Korea has the strongest momentum in tank/artillery exports; Japan excels in missile and equipment transfers; India focuses on air force platform replacement

  Risks

  Fiscal sustainability, project execution delays, budget回调 due to easing geopolitical tensions

• Japan Robotics/Content/Brand Stocks (Fanuc, SMC, Sony, Konami, TV Tokyo, etc.)

  Structural beneficiaries under the theme of Japan's economic revival

  Strengths

  Accumulation of century-old enterprises, strong demand for physical AI and automation, rapid growth in content service exports

  Comparison

  Compared to traditional manufacturing, content and robotics sectors have greater foreign currency income elasticity and growth premiums

  Risks

  Unexpected Yen appreciation, slowing overseas demand, labor shortages constraining capacity expansion

Key data

• ASEAN FDI Inflow Growth Rate (2024)+8.5%Global FDI inflows declined by 11% in the same period, highlighting ASEAN's relative attractiveness in supply chain diversification
• China's 'New Three' Export Growth (2020-2025)+349%Combined exports of EVs, lithium batteries, and PV account for 4.6% of China's total exports, up from 1.5%
• China's Global Shipbuilding Market Share (2025)56.1%Significantly higher than 35% in 2019; orders on hand account for 66.8% of the global total
• Taiwan GDP Growth Rate (2025)9%A significant case of growth divergence amplified by supply chain advantages in AI
• Asia-Pacific and Oceania Military Spending as % of Global Total23.6%Corresponding to 1.72% of GDP, reflecting accelerated regional arms race
• China's Merchandise Trade Surplus (2025)$1.2 TrillionAccounting for about 30% of global manufacturing value-added, implying external absorption capacity is near its limit
• USD/JPY Target Price (End-2027)145Based on the judgment that Japan's 'three rises' transformation improves Yen supply and demand
• Expected Rate Hikes by South Korea/Taiwan Central Banks in Next 12 Months4-5 TimesDriven by AI-driven growth and rising asset prices, despite lower long-term fiscal risk premiums

Impact & implications

The report believes that Asia's reconfiguration is creating a clear pattern of winners and losers. Economies with AI capabilities and ample capital (China, Malaysia, South Korea, Australia, Singapore) will benefit multiple times from trade and investment restructuring, energy security, and de-dollarization; Japan, Taiwan, and India are in the middle ground; while the Philippines, Thailand, and Indonesia face triple risks of lagging AI adoption, energy vulnerability, and high exposure to external shocks. For investors, opportunities concentrate on AI and semiconductor ecosystems, infrastructure/real estate/utilities in countries benefiting from supply chain diversification, energy security solutions (nuclear power/energy storage/grid), defense export leaders, emerging players in rare earth processing, and de-dollarization-related assets (Euro/Yen/RMB/Gold). At the policy level, countries need to strengthen fiscal and external buffers, implement targeted industrial policies, promote workforce retraining, and maintain strategic neutrality between the US and China to preserve trade and investment interests.

Risks

• Further escalation of trade protectionism, exceeding current expectations
• China's export model adjusts faster than expected, causing severe shocks to regional supply chains
• Obstacles to AI technology diffusion or intensified hardware controls, delaying the realization of benefits for production and application countries
• Expansion of Middle East conflicts, impacting Asia's energy security and inflation outlook
• Developed market interest rates remaining high for too long, triggering capital outflows and currency crises in emerging markets
• Unexpected easing of geopolitical tensions, leading to weakened momentum for defense spending and supply chain restructuring

What to watch

• Actual progress of FDI implementation in various countries and changes in intermediate goods trade flows
• Evolution of China's export structure to Europe/US/ASEAN and its response strategies to trade frictions
• Interest rate decisions by South Korea/Taiwan central banks and AI-related capital expenditure data
• Progress of new rare earth processing projects and changes in China's refining share
• Confirmation of Japan's wage-price spiral and demand in JGB auctions
• De-dollarization indicators: composition of central bank FX reserves, cross-border RMB settlement ratio, Gold ETF holdings
• Execution of defense budgets in Asian countries and signing of weapons export contracts
• Real-time tracking of Asian bond markets' Beta to DM interest rates and inflection point signals