Asia activity diverges: Tech tailwinds support EMAX, while China and remittance chains come under pressure

Overview

This report is JPMorgan's integrated research on Asia macro, policy, and sector activity. The core theme is that, three months after the Middle East conflict, Asia's economy is not under one-way pressure but is diverging sharply: on one hand, April activity data in China came in below expectations, and energy supply disruptions, policy patience, and weak domestic demand together raise downside risks to 2Q growth; on the other hand, parts of the EMAX technology economies are benefiting from AI-related demand and policy support, with strong export and price momentum. The report also discusses the impact of the GCC shock on Asian remittances, regional central bank policy, India's capital account, and the Australian housing market.

Core views

The report's core views are: first, China is being hit by the closure of the Strait of Hormuz and energy-related supply-chain disruptions, leaving refining, chemicals, and investment activity weaker; if industrial production in May and June does not rebound strongly, 2Q GDP faces downside risk relative to forecasts. Second, technology-export economies such as Singapore and Malaysia are supported by AI supply-chain demand, and strong nominal exports are being driven not only by volumes but also by higher prices for technology goods. Third, regional central banks are leaning more hawkish amid rising inflation pressure and shocks that are smaller than expected. Fourth, worsening GCC non-oil growth will suppress Asian remittances through employment and income channels, with Pakistan, Bangladesh, and Sri Lanka the most exposed. Fifth, the Australian housing market is under pressure from interest rates, tax reform, and construction costs.

Analysis framework

The report combines high-frequency macro data, trade and industrial production data, policy tracking, remittance panel models, and housing leading indicators. For remittances, the research uses a fixed-effects panel model spanning 2000-2025, linking remittance inflow growth to home-country macro conditions, GCC non-oil growth weighted by diaspora shares, and oil prices. For China and the technology-export segment, the report focuses on industrial production, fixed asset investment, nominal versus real exports, technology prices, and the pace of policy and fiscal execution.

Methodology notes

• 宏观模型Fixed-effects panel model

  Remittance transmission mechanism

  The model estimates the relationship between remittance inflow growth and GCC non-oil growth, oil prices, home-country inflation, and exchange-rate pressure across Asian and non-Asian economies, in order to assess the potential impact of the Middle East conflict on Asian remittances.

• 宏观监测High-frequency activity and trade momentum analysis

  Identifying upside and downside growth risks

  Industrial production, fixed asset investment, exports, PMI, price indices, and the pace of policy execution are used to judge the direction of 2Q growth risks for China and EMAX economies.

• 房地产周期Leading indicators from house price growth and auction clearance rates

  Australian housing demand and supply pressures

  House price growth, auction clearance rates, new-home starts, and the gap between completions are used to assess the outlook for Australian residential investment and house prices.

Asset mapping & comparison

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

• China macro and cyclical assets

  Affected by energy supply disruptions, weaker domestic demand, and policy timing

  Strengths

  If fiscal deployment accelerates, 2H growth could receive support; the full-year target range gives some policy flexibility.

  Weaknesses

  April industrial production, retail sales, and investment all came in below expectations, with clear drags from real estate and infrastructure investment.

  Comparison

  Compared with technology-export economies such as Singapore and Malaysia, China's near-term growth risks are more tilted to the downside.

  Risks

  Persistently higher energy costs, prolonged disruption in the Strait of Hormuz, and fiscal execution that falls short of expectations.

• EMAX technology-export economies

  Driven by AI demand and the semiconductor/server chain

  Strengths

  Technology export momentum in Singapore and Malaysia is accelerating, with demand expanding from semiconductors into hard disk drives and server products.

  Weaknesses

  Supply pressure and price increases may create inflation pressure and raise the risk of policy tightening.

  Comparison

  Compared with China's domestic-demand chain, the technology-export chain has growth risks that are more tilted to the upside.

  Risks

  A pullback in global technology demand, supply bottlenecks, and rising prices eroding real demand.

• Asian rates and FX

  Regional central banks are becoming more hawkish because of inflation and FX pressure

  Strengths

  Policy tightening can help curb inflation and stabilize currencies.

  Weaknesses

  Higher interest rates may weigh on domestic demand and housing.

  Comparison

  Indonesia has already raised rates by 50 bp, and Korea faces the risk of starting a mild hiking cycle earlier.

  Risks

  IDR pressure, falling foreign reserves, and inflation staying above expectations.

• South Asia remittances and current accounts

  Affected by GCC non-oil growth, oil prices, and labor-sector exposure

  Strengths

  Formal-channel data still show resilience for now, and post-conflict reconstruction could bring a rebound impulse once tensions ease.

  Weaknesses

  Pakistan, Bangladesh, and Sri Lanka have high reliance on GCC remittances, and workers are concentrated in cyclical industries.

  Comparison

  India and the Philippines are relatively more resilient because their occupational mix is broader and their fundamentals are stronger.

  Risks

  A sharp slowdown in GCC non-oil growth, employment contraction, and stricter FX controls intensifying expectations of currency stress.

• Australian housing and residential investment

  Affected by high rates, tax reform, and construction costs

  Strengths

  Construction cost pressure is expected to be lower than in 2021/22, and current project economics are unlikely to be broadly damaged.

  Weaknesses

  Auction clearance rates have fallen to multi-year lows, and high-end transactions in Sydney and Melbourne have cooled significantly.

  Comparison

  Compared with the supply-demand mismatch in 2021/22, this round of pressure is more demand-driven and policy-driven.

  Risks

  Interest rates staying high, FY27 tax reform reducing returns on investment properties, and energy supply-chain issues pushing up construction costs.

Key data

• China April industrial production-1.0% m/m saThe largest monthly contraction in three years, despite an acceleration in industrial production in high-tech manufacturing.
• China fixed asset investment-8.0% oyaManufacturing, infrastructure, and real estate investment all slowed, with real estate FAI at -20.1% oya.
• China 2Q GDP forecast4.0% q/q saar; 4.9% oyaTo reach the forecast, industrial production in both May and June would need to rebound by more than 1% m/m sa.
• Technology industrial production momentum45% q/q saarTechnology IP has maintained strong annualized growth over the three months through March.
• Technology inflation70% annualizedThis explains more than half of the recent increase in nominal technology exports.
• Saudi Arabia March transfersUp 9.2% y/y to USD 4.5 billionConflict-related travel disruptions and high oil prices squeezing household income may be pushing more remittances through formal channels.
• GCC non-oil growth impact on remittancesEach 1 pp increase in GCC non-oil growth is associated with roughly a 1.5 pp increase in remittance inflow growthReflects GCC income and employment channels.
• Oil price impact on remittancesEach 1% increase in oil prices is associated with roughly a 0.13 pp increase in remittance growthOil prices affect remittances through fiscal revenue, liquidity, confidence, and labor demand.
• Asian remittance baseline shockMay contract by about 5% on averageDownside-biased, based on the GCC growth assumption.
• Current account impactIndia and the Philippines about 0.2% of GDP, Bangladesh and Sri Lanka about 0.4% of GDP, Pakistan about 0.6% of GDPReflects differences in GCC exposure and remittance dependence across countries.
• Australian residential investment forecast0.6% y/y by end-2027The report cuts the residential investment forecast.

Impact & implications

The investment and macro implication is that Asian assets need to be differentiated by country and transmission channel, rather than simply being traded as 'the Middle East conflict is negative for Asia.' AI and technology supply chains still support economies such as Singapore and Malaysia, and may reinforce inflation and hawkish central-bank risks; China is more dependent on a rebound in industrial production and faster fiscal deployment; several South Asian countries need to watch for the impact of slower GCC employment and remittances on their current accounts and domestic demand; and Australian property-linked assets face cooling demand and policy headwinds.

Risks

• The Strait of Hormuz is closed and the Middle East conflict lasts longer than expected, amplifying energy, trade, and supply-chain shocks.
• China's industrial production in May and June fails to rebound meaningfully, leaving 2Q GDP below forecast and increasing policy pressure.
• Strong nominal technology exports are driven mainly by prices rather than real demand, with volume and price both potentially cooling later.
• Regional central banks hike rates faster or more aggressively, weighing on domestic demand and risk assets.
• Deterioration in GCC non-oil growth and employment causes remittances to adjust faster and more persistently than historical experience.
• FX restrictions or expectations of currency stress shift remittances to informal channels, further weakening official inflows.
• Australian housing demand keeps falling, dragging down residential investment and the wealth effect.

What to watch

• China's May and June industrial production, retail sales, fixed asset investment, and the pace of fiscal bond issuance.
• Technology exports, technology prices, and real-export divergence in Singapore, Malaysia, and Korea.
• The Bank of Korea's growth and inflation forecasts, communication tone, dissenting votes, and conditional dot plot.
• Further hikes by Bank Indonesia, IDR performance, foreign reserves, and seasonal dividend-remittance pressure.
• GCC non-oil growth, hiring, oil prices, the open/closed status of the Strait of Hormuz, and official remittance data.
• Current accounts and FX policy in Pakistan, Bangladesh, Sri Lanka, India, and the Philippines.
• Australian auction clearance rates, high-frequency house-price indicators, new-home starts and completion gaps, and construction costs.