An energy shock is amplifying divergence in Asia, with macro, FX and rates opportunities arising from country differences
AI summary card
An energy shock is amplifying divergence in Asia, with macro, FX and rates opportunities arising from country differences
Nomura argues that the energy shock from the US-Iran conflict places Asia at the center of the shock, but growth, inflation, fiscal conditions and central bank responses are expected to diverge materially, so Asia should not be viewed through a single framework.
- Growth is more fragile in Thailand and the Philippines, while Taiwan, Singapore, Malaysia, and China are relatively more resilient.
- Inflation in the Philippines, Australia and New Zealand is expected to be above target, with a greater likelihood of core inflation pass-through in the Philippines, Singapore, and Australia.
- Fiscal policy is the first line of defense for most Asian economies, but fiscal slippage risk is higher in India and Indonesia, and there is a downgrade risk for Indonesia and Thailand.
- Strategically, the preferred view is long EUR/INR, long SGD/IDR, short USD/CNH, long NZD/USD, and on rates, long the Thailand and Korea receive side as well as an India curve steepener.
Report interpretation
Overview
This report examines the impact of the US-Iran conflict-driven energy price and physical supply shock on Asian economies. Nomura argues that Asia, as a net energy-importing region with relatively high dependence on Middle East energy, is at the center of the current shock, but because countries differ in energy exposure, energy mix, fiscal space, inventory and industrial buffers, and starting points for inflation and demand, growth, inflation and policy responses are expected to diverge materially.
Core views
The core view is that growth risk is higher in EM Asia than DM Asia, with Thailand and the Philippines more sensitive to worsening terms of trade and rising energy prices; Taiwan is supported by AI demand, Singapore by technology demand, construction activity and fiscal buffers, Malaysia by net energy exports and domestic demand, while China is relatively more resilient because it is largely self-sufficient in coal and has lower oil and gas dependence on the power generation side. On inflation, inflation in the Philippines, Australia and New Zealand is more likely to be above central-bank targets; the second-round core inflation effects are mainly concentrated in the Philippines, Singapore and Australia. On policy, most Asian economies will initially rely on fiscal measures, but fiscal slippage risks are elevated in India and Indonesia; Australia, the Philippines, New Zealand and Malaysia are more likely to hike, while China and Thailand are more likely to hold.
Analysis framework
The report adopts a cross-country comparative framework, decomposing the energy shock into a price shock and a physical supply shock, and evaluates each economy’s growth, inflation, fiscal and monetary policy risks across five dimensions: degree of net energy import dependence, energy structure, fiscal capacity, buffer factors, and macro starting points, then maps these macro divergences into FX and rates trades.
Methodology notes
Energy exposure, fiscal space, policy response and initial macro conditions together determine the intensity of the shock.
Economies with high net energy imports, higher CPI weights for food and energy, limited fiscal space and already elevated inflation are more vulnerable to double pressure from weaker growth and higher inflation.
Compare fiscal slippage risk with tightening risk.
India is more skewed toward fiscal slippage risk, while the Philippines and Singapore are more skewed toward monetary tightening risk; if the IDR continues to weaken, Bank Indonesia may be forced to raise rates.
Translate differences in growth, inflation, fiscal and external account conditions across countries into relative-value trades.
On this basis, the report proposes long EUR/INR, long SGD/IDR, short USD/CNH, long NZD/USD, and rate trades such as long receive on Thailand and Korea as well as a 6m-5y India steepener.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- EUR/INRlong EUR/INR
- Strengths
- India’s fiscal slippage risk, a widening current account, weaker portfolio flows and RBI USD demand may all exert depreciation pressure on INR.
- Weaknesses
- If oil prices fall, fiscal consolidation is stronger than expected, or INR receives policy support, the trade’s room for pain-free execution could narrow.
- Comparison
- Compared with some other Asian currencies, INR is simultaneously exposed to fiscal, external-account and energy-import stress.
- Risks
- RBI macroprudential actions, a broadly weaker USD, and a fading energy supply risk.
- SGD/IDRlong SGD/IDR
- Strengths
- Singapore has ample fiscal space and MAS can respond to imported inflation through FX policy; Indonesia faces fiscal, BOP, reserve adequacy and FX-control risks.
- Weaknesses
- Indonesia’s LNG and coal exports could partially offset the oil shock.
- Comparison
- SGD’s policy support versus IDR’s external fragility creates clear relative divergence.
- Risks
- Bank Indonesia may be forced to hike, Indonesian fiscal discipline stronger than expected, and stronger-than-expected commodity export revenues.
- USD/CNHshort USD/CNH
- Strengths
- China is less directly hit by the conflict, with strong coal self-sufficiency and policy preference for RMB support, plus capital inflows and political factors supporting CNH.
- Weaknesses
- If energy and broad commodity price increases persist and spread to food, metals and semiconductors, China’s buffer may weaken.
- Comparison
- Compared with economies with high energy import dependence, China’s power system is structurally more defensive.
- Risks
- A re-start of PBoC easing, USD strengthening, and worse-than-expected external demand or commodity-cost pressure.
- NZD/USDlong NZD/USD
- Strengths
- RBNZ is hawkish, positioning factors and overseas bond demand support NZD.
- Weaknesses
- New Zealand is a materially net energy-importing economy, so activity there may be hit more than in Australia.
- Comparison
- Compared with lower-rate or policy-hold economies, New Zealand’s rate path is relatively more hawkish.
- Risks
- Growth deterioration overriding hike expectations, worsening global risk sentiment, and energy price shocks hurting terms of trade.
- Thailand 5y NDIRS versus 50% USreceive 5y NDIRS
- Strengths
- Thailand has higher growth risk, a low probability of BOT hikes, elevated term premia and limited fiscal risk.
- Weaknesses
- If tourism receipts rebound more strongly than expected, growth pressure may ease.
- Comparison
- Compared with economies more likely to tighten, Thailand’s monetary policy is more likely to remain on hold.
- Risks
- Unexpectedly higher inflation, a more hawkish BOT stance, and a renewed global rise in rates.
- Korea Jun-5y NDIRSreceive Jun-5y NDIRS
- Strengths
- Korea’s inflation is relatively contained, WGBI inflows and already aggressive rate pricing support the receive side.
- Weaknesses
- Energy prices could still push up short-term inflation.
- Comparison
- The chip cycle and fiscal capacity make Korea more resilient than energy-vulnerable economies.
- Risks
- BOK turning more hawkish due to inflation expectations, weaker external demand, or global rates rising.
- India 6m-5y INR curve6m-5y steepener
- Strengths
- High growth risk, ample RBI liquidity provision, and overly aggressive hike pricing support curve steepening.
- Weaknesses
- Fiscal slippage could raise medium-to-long-end supply pressure.
- Comparison
- India’s fiscal and energy import pressures make its rates curve risks differ from economies with stronger fiscal space.
- Risks
- Core inflation rising above 5%, CPI near 6%, and growth outperforming expectations triggering additional RBI hikes.
Key data
- Philippines 2026 CPI4.9% versus 2-4% targetThe report expects inflation to rise above the target band and could prompt BSP to hike rates by 50 bps during the year.
- Australia 2026 CPI4.8% versus 2-3% targetInflation has been above target for several consecutive years, and the energy shock is more likely to feed into core inflation; under adverse scenarios RBA may hike further.
- New Zealand 2026 CPI4.0% versus 2% targetWith inflation as RBNZ’s sole mandate, the report assumes hikes of up to 100 bps are possible if oil prices are higher.
- India fiscal slippage risk0.6% of GDP versus FY27 budget target of 4.3% deficitFuel and fertilizer subsidy increases and consumption tax cuts could offset part of the revenue gains, while fiscal risks may pressure INR and rates markets.
- Indonesia fiscal slippage riskaround 0.8% of GDP if Brent averages USD100/bblHigher fuel subsidy spending could push the fiscal deficit toward or beyond the 3% headline threshold, increasing downgrade and capital outflow risks.
- Singapore support packageSGD1.0bn, around 0.1% of GDPThe authorities have ample fiscal space to support households and corporations, allowing MAS to focus more on price stability.
- China adverse scenarioGDP growth -0.1pp to 4.3%, CPI +0.3pp to 0.9%Coal self-sufficiency provides a buffer, but if broad commodity inflation persists, policy buffers may be insufficient and PBoC easing could be delayed.
Impact & implications
The investment implication is that this energy shock is not a uniformly one-way regional risk, but rather an amplifier of differences inside Asia. Economies with more fragile growth, higher fiscal risk and greater external balance pressure may face stress in FX and bond markets; economies with stronger inflation resilience or more hawkish policy stances may instead support their currencies or a higher-for-longer rates path. Strategies should focus on cross-country relative performance rather than simply long or short Asia risk assets as a bloc.
Risks
- The duration of the US-Iran conflict and the extent of energy-supply disruption exceed the base case.
- If Brent oil remains at USD100/bbl or higher for an extended period, fiscal, inflation and external-account pressures could intensify.
- Fuel subsidies and price controls may suppress short-term inflation but increase fiscal deficit, debt and downgrade risks.
- If the local currency continues to weaken, some central banks may be forced to hike, altering the original growth and rates assessments.
- If the energy shock spills into food, transport, utilities and services prices, core inflation and inflation expectations could become unanchored.
What to watch
- Prices and physical supply conditions of Brent oil, LNG, coal and refined petroleum products.
- Fuel subsidies, price controls, consumption tax adjustments and the scale of targeted cash transfer support in each Asian economy.
- Central bank meetings and hiking paths in the Philippines, Australia, New Zealand and Malaysia.
- Exchange-rate performance in IDR, INR, CNH, SGD and NZD, and signs of central bank intervention.
- Fiscal deficits, government borrowing, rating-agency actions and capital flows in India and Indonesia.
- Manufacturing PMIs, consumer confidence, input-cost pressure, core CPI and evidence of second-round effects.