Hope Is Not a Strategy: Asia Must Prepare for a Prolonged Energy Shock

Overview

This report discusses the impact of the Iran war and disruptions in the Strait of Hormuz on Asian economies and assets. The title, “Hope is not a strategy,” emphasizes that investors and policymakers cannot merely bet on a prolonged ceasefire or a quick reopening of the strait; if the energy supply shock persists for months, Asia’s energy-importing economies will face higher oil prices, pressure from fiscal subsidies, declining inventories, tighter monetary policy, and demand adjustment. Meanwhile, the AI investment boom and technology exports provide important support to China, South Korea, Taiwan, Japan, and some Southeast Asian economies, leading to clear regional divergence in performance.

Core views

The core view is that Asia’s short-term resilience does not mean risks have disappeared. Lower oil-use intensity, remote work, improved urban transport, and the expansion of EVs and charging infrastructure have mitigated some of the shock, and AI capital spending has also generated growth spillovers; however, fiscal stimulus and refined-product inventory drawdowns are temporary buffers, and if supply does not improve, prices will rise and demand will weaken. Strategically, the report continues to favor North Asian markets supported by AI and technology exports, especially China, South Korea, and Japan; it is more cautious on markets such as India, the Philippines, and Indonesia, which have high dependence on energy imports and greater sensitivity in their current accounts and exchange rates.

Analysis framework

The report uses a macro strategy framework, combining the energy supply shock, fiscal and inventory buffers, Asian central bank responses, AI investment spillovers, China’s domestic-external demand divergence, US-China negotiations, and relative asset performance to assess the regional allocation implications for equities, bonds, foreign exchange, and commodities.

Methodology notes

• Macro Shock AnalysisSupply Shock and Terms of Trade Framework

  Rising energy prices put pressure on the growth, inflation, and external accounts of energy-importing economies.

  The report treats the disruptions in the Strait of Hormuz as a negative energy supply shock and focuses on oil prices, dependence on imported energy, inventory drawdowns, and the sustainability of fiscal subsidies.

• Monetary Policy AnalysisImported Inflation Reaction Function

  An imported energy shock may force central banks to shift from easing or waiting to hiking rates.

  The report lists potential rate-hike paths for central banks such as those in the Philippines, Indonesia, and India, and emphasizes that exchange-rate sensitivity and current-account pressure will amplify the need for tighter policy.

• Regional Asset AllocationRelative Preference for North Asia

  When energy pressure and AI spillovers coexist, markets benefiting from technology exports have a relative advantage.

  The report maintains its equity preference for China, South Korea, and Japan, and believes that technology-related currencies such as KRW, TWD, MYR, and SGD are relatively superior to energy-sensitive currencies.

• Growth DecompositionAI Capital Expenditure Spillovers

  AI investment supports Asian growth through semiconductors, memory, data centers, and fiscal revenue channels.

  The report includes Taiwan, South Korea, Malaysia, Singapore, Vietnam, and Thailand in its analysis of AI supply-chain spillovers, and also mentions the fiscal increment from tax revenues generated by Korean technology companies.

Asset mapping & comparison

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

• Brent crude / energy prices

  The core variable of the energy supply shock

  Strengths

  If traffic through the Strait of Hormuz is restored, falling oil prices could ease imported inflation and fiscal subsidy pressure in Asia.

  Weaknesses

  If disruptions persist, inventory drawdowns and fiscal subsidies will be difficult to sustain, and demand will have to adjust further.

  Comparison

  Energy-importing economies are hit harder than economies that are energy self-sufficient or have invested more fully in alternative energy.

  Risks

  A prolonged blockade of the strait, oil prices remaining elevated, declining refined-product inventories, and rising inflation expectations.

• Chinese equities / China macro assets

  One of the preferred North Asian assets, while also affected by the divergence between exports and domestic demand

  Strengths

  Exports remain strong, technology products are performing well, and investment in alternative energy and coal has improved resilience to direct energy shocks.

  Weaknesses

  Domestic investment and consumption are weak, while falling property prices, rising energy prices, new vehicle taxes, and the fading effect of consumer goods trade-in policies are dragging on demand.

  Comparison

  Compared with India and Southeast Asian energy-importing economies, China is more resilient to direct energy shocks, but it has indirect exposure to emerging-market export demand.

  Risks

  An energy-shock-driven slowdown in emerging markets, renewed US-China tensions, the Taiwan issue, and a renewed escalation of tariffs or sanctions.

• South Korea, Taiwan, and technology supply-chain assets

  Assets benefiting from AI capital expenditure spillovers

  Strengths

  High-end memory, semiconductors, and technology production make significant contributions to GDP, and South Korea may also receive a fiscal boost from tax revenues generated by technology companies.

  Weaknesses

  The share of AI-related exports and the degree of benefit vary by country, and data-center investment is usually realized over multiple years with a high share of equipment imports.

  Comparison

  Compared with energy-sensitive markets, technology-exposed economies are more likely to gain support for growth and foreign exchange.

  Risks

  Downward revisions to AI capital expenditure expectations, semiconductor cycle volatility, and rising global real interest rates.

• Japanese equities, JGBs, and JPY

  Equity preference coexists with upside risk to bond yields

  Strengths

  Japanese equities have risen over the past year, and the market remains focused on reflation policies and policy normalization.

  Weaknesses

  Energy subsidies, food VAT cuts, and increased defense spending plans add fiscal pressure, while the BOJ’s reduced JGB purchases also push yields higher.

  Comparison

  Japanese equities remain in the preferred North Asia basket, but the bond market is more sensitive to fiscal conditions and real rates.

  Risks

  BOJ rate hikes occurring later than the market expects, the yen retesting low levels, and continued rises in JGB yields.

• India, Indonesia, and Philippines bonds and FX

  Assets under pressure from energy imports and high-yield dynamics

  Strengths

  If energy flows normalize before the end of June, these markets could see a temporary rebound.

  Weaknesses

  High imported energy demand, fiscal pressure, current-account deficits, and high exchange-rate sensitivity mean policy rates may move higher still.

  Comparison

  Compared with technology-exposed markets such as South Korea, these markets are more vulnerable to rising oil prices and higher real rates in developed markets.

  Risks

  Larger-than-expected central bank rate hikes, currency depreciation, rising subsidy costs, and slowing demand.

• CNY, KRW, TWD, MYR, SGD relative to PHP, INR, IDR

  A relative-value FX expression

  Strengths

  CNY is expected to strengthen gradually, while KRW, TWD, MYR, and SGD are supported by technology exports and the AI supply chain.

  Weaknesses

  If the energy shock worsens or U.S. real rates rise, Asian FX as a whole will still face pressure.

  Comparison

  Technology-exposed currencies are expected to outperform energy-sensitive currencies that lack significant technology exposure.

  Risks

  Another rise in oil prices, uncertainty in US-China negotiations, capital outflows, and local central bank policy lagging inflation.

Key data

• Brent crude pricearound $99/bblAs of the time of writing, oil prices had pulled back somewhat but remained within the wide range seen since the early phase of the war.
• China EV charging growtharound +60% yoyThe report says China’s EV charging volume was up about 60% year over year in early May, as one piece of evidence for lower oil-use intensity and greater demand elasticity.
• Philippines policy rate forecasta further 100bp of rate hikesGoldman Sachs incorporates the risk of an inter-meeting rate hike by the Philippine central bank into its base-case forecast.
• Indonesia and India policy rate forecast50bp hike eachReasons include high imported energy demand, fiscal policy pressure, current-account deficits, and high exchange-rate sensitivity.
• Taiwan technology production contribution to GDPnearly 6pp of 2025 GDP growth of 8.6% came from growth in technology productionThe report expects a similar magnitude of support from technology production growth this year.
• South Korea high-end memory chip contributionabout 0.8pp of 2025 GDP growth of 1.0% came from demand for high-end memory chipsThe report expects South Korea may still receive at least about 1 percentage point of related growth contribution this year.
• South Korea fiscal windfallabout 5pp of GDPThe report estimates that tax revenues from highly profitable technology equipment manufacturers could bring South Korea a fiscal increment equivalent to about 5 percentage points of GDP.
• BOJ rate-hike pricingmarket pricing implies about an 80% chance of a June rate hikeGoldman Sachs still forecasts a July rate hike and warns that if the hike comes later, the yen could retest its pre-intervention lows.

Impact & implications

The investment implication is greater regional divergence: a prolonged energy shock would weigh on the terms of trade, exchange rates, and bond-market performance of South Asia and most Southeast Asian energy-importing economies, while also pushing policy rates higher; meanwhile, AI investment, semiconductor exports, and technology-related tax revenues will continue to support North Asia and some technology supply-chain economies. In equities, the report maintains a relative preference for China, South Korea, and Japan; in bonds, it is cautious on high-yield markets such as Indonesia, the Philippines, and India; in FX, it expects CNY to strengthen gradually, while technology-exposed currencies such as KRW, TWD, MYR, and SGD outperform energy-sensitive currencies such as PHP, INR, and IDR.

Risks

• Disruptions in the Strait of Hormuz persist for several months, keeping oil and refined-product prices elevated.
• Asia’s fiscal subsidies and inventory drawdown buffers are unsustainable, so adjustment will eventually have to occur through higher prices and weaker demand.
• Central banks in the Philippines, Indonesia, India, and elsewhere are forced to hike rates more quickly or by larger magnitudes.
• High oil prices and rising real rates in developed markets jointly pressure India and most Southeast Asian markets.
• China’s indirect export exposure to emerging-market demand may be amplified by the energy shock.
• US-China negotiations, the Taiwan issue, and tariff or sanctions policies carry risks of renewed escalation.
• Japan’s fiscal expansion, reduced BOJ bond purchases, and uncertainty around the timing of rate hikes could push JGB yields higher and affect JPY.

What to watch

• Progress in the Iran war, the extension of any ceasefire, and the restoration of energy flows through the Strait of Hormuz.
• Whether Brent crude remains sustainably above the roughly $99/bbl level referenced in the report.
• The pace of declines in oil-product inventories across Asia and the scale of additional fiscal subsidies.
• Whether the central banks of the Philippines, Indonesia, India, Malaysia, and Thailand shift to a clearer tightening path.
• Whether China’s export growth can offset weak domestic demand, and whether emerging-market demand is dragged down by the energy shock.
• AI capital spending, semiconductor demand, high-end memory prices, and the implementation pace of data-center investment.
• Policy signals in US-China negotiations related to goods purchases, Taiwan language, tariff sanctions, and RMB internationalization.
• The Japanese government’s fiscal plans, the timing of BOJ rate hikes, JGB yields, and JPY trends.