AI export boom and trade surpluses continue to support North Asian assets

Overview

The report compares Asian economies along the axes of the extent to which they benefit from technology exports and their dependence on energy imports. The surge in AI capex is expanding the export and current account advantages of Taiwan, Korea, and China, while the rise in energy prices brought by renewed U.S.-Iran conflict is weighing on economies that lack technology exposure, have limited refining capacity, and depend on oil and gas imports. The resulting macro mix continues to favor North Asia, though there is still significant differentiation within markets.

Core views

North Asia is forming a “super surplus” driven by AI servers, semiconductors, automobiles, and broader manufacturing exports. The transmission to investment and consumption is clearest in Taiwan, and Korea’s domestic transmission is strengthening, but its equity market faces fading catalysts, intensifying competition, and monetary tightening after a large rally. China’s export competitiveness remains strong, and gradual renminbi appreciation should help ease trade frictions and promote internationalization, while being unlikely to significantly weaken exports in the near term; however, real estate, infrastructure, and retail remain weak, and policy stimulus is relatively restrained. Japan has largely achieved reflation, but fiscal risks, rising bond yields, and insufficient productivity improvement limit the outlook. Indonesia is being hit simultaneously by oil prices, the dollar, and policy uncertainty, and the report remains cautious; India’s cyclical signs are improving, but it is better suited to selective allocation through high-carry currencies and long-term government bonds.

Analysis framework

The research first constructs a sensitivity matrix of net technology exports and net oil and gas imports for each economy, then combines trade surpluses, currency valuation, domestic demand, fiscal and monetary policy, and cross-asset market performance to conduct country comparisons. The report also uses data on exports, energy imports, proxies for real domestic demand, inflation, interest rates, and capital flows to assess the transmission of external demand strength to domestic demand and asset prices.

Methodology notes

• Regional macro comparisonTechnology-energy sensitivity matrix

  Measures technology exposure by net electronics exports and energy vulnerability by net oil and gas imports.

  Economies with higher net technology exports and lower dependence on energy imports are better positioned to benefit from AI capex and withstand energy price shocks; economies disadvantaged on both the technology and energy dimensions face higher risks.

• Balance of payments analysisTrade surplus and currency valuation comparison

  Combines trade balances, dollar valuation, and the degree of undervaluation of Asian currencies to assess the direction of currency adjustment.

  North Asia’s massive surpluses coexist with dollar overvaluation, providing fundamental support for moderate appreciation of currencies such as the renminbi and the Korean won, though the pace of appreciation still depends on policy preferences and capital flows.

• Growth decompositionAnalysis of transmission from external demand to domestic demand

  Tracks spillover effects from the export boom to capex, consumption, fiscal revenue, and government spending.

  Taiwan’s transmission is already relatively clear, Korea’s is gradually strengthening, while China still shows strong exports but weak domestic demand, indicating that the same technology cycle generates different domestic multipliers across economies.

• Cross-asset allocationMacro fundamentals-to-asset performance mapping

  Comprehensively evaluates equities, foreign exchange, and sovereign bonds based on growth, inflation, interest rates, exchange rates, valuation, and policy credibility.

  This approach is used to distinguish structurally benefiting markets from crowded short-term trades, and to form different allocation preferences for North Asia, India, and Indonesia.

Asset mapping & comparison

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

• Taiwan equities and the New Taiwan dollar

  Key beneficiary assets of AI server and semiconductor capex.

  Strengths

  High net technology export exposure, visible transmission to capex and consumption, and a strong trade surplus.

  Weaknesses

  High concentration in the technology cycle and heavy dependence on exports and global AI capex.

  Comparison

  Domestic spillover effects are earlier and clearer than in Korea.

  Risks

  A slowdown in AI capex, semiconductor competition, global trade restrictions, and sustained increases in energy prices.

• Korean equities and the Korean won

  Structurally benefit from the memory chip and AI server supply chain, but near-term volatility is rising.

  Strengths

  Export surplus, capacity expansion, government projects, and fiscal revenue growth support domestic activity, while the won is supported by capital repatriation.

  Weaknesses

  The equity market had previously risen significantly, while leveraged positions, high volatility, and household debt limit the wealth effect.

  Comparison

  Technology advantages are similar to Taiwan’s, but monetary tightening and crowded market pressures are more prominent.

  Risks

  Declining sustainability of AI capex, entry of new competitors, further rate hikes, and renewed foreign capital outflows.

• Chinese equities, the renminbi, and Chinese fixed income assets

  Exports and increased manufacturing share support externally oriented assets, while gradual renminbi appreciation may benefit inflows into onshore bonds.

  Strengths

  Broad export base, record trade surplus, renewable energy substitution reducing fossil fuel imports, and supportive renminbi valuation.

  Weaknesses

  Real estate, infrastructure, and retail are weak; real domestic demand growth is only about 1% to 2%; fiscal policy is tightening in the near term.

  Comparison

  The sources of the trade surplus are more diversified than in Taiwan and Korea, but the divergence between external demand and domestic demand is also more pronounced.

  Risks

  Escalation of trade frictions, energy shocks in export markets, delayed stabilization of real estate, and insufficient policy support.

• Japanese equities, the yen, and Japanese government bonds

  Reflation and governance reforms provide support, but fiscal expansion and bond supply-demand dominate risk pricing.

  Strengths

  Underlying inflation is close to 2%, wage and services price dynamics are relatively stable, and potential pension fund reallocation could support domestic bonds.

  Weaknesses

  Real economic growth is below 1%, information technology investment is insufficient, and productivity and potential growth have not yet improved significantly.

  Comparison

  Compared with other North Asian economies, Japan’s advantage comes more from reflation than from the AI export boom.

  Risks

  Rising fiscal risk premium, worsening debt-to-GDP ratio, unexpectedly faster Bank of Japan rate hikes, and limited effectiveness of yen intervention.

• Indonesian equities, the rupiah, and local bonds

  The report maintains a cautious view.

  Strengths

  GDP growth is above 5% year over year, and inflation remains within Bank Indonesia’s target range.

  Weaknesses

  Sensitive to oil prices and a strong dollar, lacks AI upside exposure, and faces short-term conflicts among policy objectives.

  Comparison

  It is in a relatively unfavorable position in the technology-energy matrix, with both currency and equity performance lagging regional markets year to date.

  Risks

  Sudden policy adjustments, changes in central bank leadership, fiscal constraints, fuel subsidy pressure, and declining investor confidence.

• Long INR/THB and 30-year Indian government bonds

  India market recommendations focus on high-carry FX and long-term bond strategies.

  Strengths

  Improved FX stability, signs of better cyclical activity, and growth in pension savings supporting demand for long-term bonds.

  Weaknesses

  Manufacturing reforms are progressing more slowly than expected, sensitivity to energy imports, and concerns that high-value services may be displaced by AI.

  Comparison

  Compared with Indonesia, India’s allocation opportunities are clearer, but not yet sufficient to form a broadly bullish view on risk assets.

  Risks

  Energy shocks, renewed inflation increases, reform stagnation, trade frictions, and continued increases in long-term yields.

Key data

• China’s June export growthUp 27% year over yearRising technology product prices and increased export volumes were important drivers.
• China’s June trade surplusUS$125 billionA record high, equivalent to about US$1.5 trillion annualized.
• U.S. trade deficit over the past yearMore than US$1 trillionThe main counterpart to Asia’s trade surpluses.
• Proxy for China’s real domestic demand growthAbout 1% to 2%Shows that strong exports have not yet translated into a broad recovery in domestic demand.
• Korea’s unexpected fiscal revenue increaseMore than 5% of GDPExpected to support a near doubling of next year’s government spending growth to 10%, while halving the budget deficit.
• Taiwan capex growthHigh single digitsThe chip investment cycle is lasting longer, with clearer domestic transmission.
• Taiwan consumption spending growthClose to 5%Reflects that the technology investment boom has spread to domestic activity.
• Korean monetary policy expectationsTwo more rate hikes expected by early 2027Moderate tightening may limit valuation expansion and support the Korean won.
• Repricing of Japan long-term government bond yieldsUp about 200 basis points over two yearsBroadly reflects normalization of inflation expectations and a diminished role for the Bank of Japan.
• Potential domestic bond inflows from Japan’s Government Pension Investment FundUp to about US$75 billionCould be achieved through reallocation within the target asset allocation ranges even without adjusting those ranges.
• Indonesia’s latest GDP growthOver 5% year over yearReal activity growth is acceptable, but asset performance is dragged down by external sensitivity and policy uncertainty.

Impact & implications

For regional allocation, technology exports, current account surpluses, and currency undervaluation continue to support North Asia’s relative performance, but crowded Korean equities and policy tightening require stricter position management. Moderate renminbi appreciation could attract funds into low-yielding Chinese fixed income assets and serve renminbi internationalization. Weak Chinese domestic demand means export supply chains and domestic consumption assets may continue to diverge. Japanese assets need to price both reflation achievements and fiscal risks, India is suited to carry and duration strategies, while Indonesian assets require a higher policy risk premium.

Risks

• Escalation of the U.S.-Iran conflict leads to further increases in oil, gas, and refined product prices, hitting energy-importing Asian economies.
• A slowdown in global AI capex or new competition weakens the technology export cycle in Korea and Taiwan.
• Crowded North Asian equity trades, excessive leveraged positioning, and foreign ownership constraints amplify market pullbacks.
• China’s domestic demand and real estate recovery is slower than expected, and export growth fails to transmit sufficiently to consumption and investment.
• U.S. trade protectionism escalates, imposing tariffs or other restrictions on Asia’s massive surpluses.
• Japan’s fiscal expansion pushes up term premia and worsens the debt-to-GDP ratio.
• Insufficient policy communication in Indonesia, changes in central bank leadership, and conflicting policy objectives increase risk premia.
• Foreign exchange, interest rate, and derivatives trading involves principal loss and significant volatility risk.

What to watch

• Whether AI server, memory chip, and equipment capex maintains high growth.
• The sustainability of transmission from the export boom in Taiwan and Korea to consumption, employment, and investment.
• The Bank of Korea’s rate hike path through early 2027 and changes in won funding flows.
• Gradual renminbi appreciation, offshore capital inflows into Chinese bonds, and progress in renminbi internationalization infrastructure.
• Whether Chinese real estate sales and prices can continue to stabilize, and whether fiscal spending accelerates.
• Whether the decline in China’s crude oil imports is due to renewable energy substitution or inventory drawdown.
• Japan’s fiscal policy, the pace of Bank of Japan rate hikes, and asset reallocation by the Government Pension Investment Fund.
• Indonesia’s policy priorities, the replacement of the Bank Indonesia governor, and sovereign rating agency reactions.
• India’s cyclical recovery, inflation trends, and the response of long-term government bonds to pension demand.
• The linked impact of the U.S.-Iran situation, energy prices, and dollar trends on Asian assets.