As Asia-Pacific economies navigate an increasingly challenging macroeconomic environment, the ability to translate macro dynamics into tangible business implications is more critical than ever. In an exclusive fireside discussion, AlphaSense’s June Boo, VP of Corporate Sales, sat down with Derrick Kam, Asia Economist at Morgan Stanley, for his expert perspective on APAC markets. The discussion explored how global macro trends are influencing corporate performance, capital allocation, and strategic decision-making across APAC.
Below, we recap five key takeaways from that discussion, exploring the factors driving growth in APAC, the trajectory of the business cycle, and the implications for corporate leaders and investors across sectors.
Supply Chain Security and Economic Efficiency
Geopolitical tensions, sudden trade policy shifts, and what Kam characterized as “multipolar world dynamics” are forcing companies worldwide to rethink supply chain resilience. International trade networks are pivoting away from pure cost-centric models to ones that also prioritize security and resilience.
The real challenge in evaluating supply chains today is that they cannot be assessed solely from an economic cost perspective; security considerations must also be taken into account.
Businesses across industries are shifting from lean, just-in-time inventory management to a more conservative “just in case” approach. In a Tegus Expert Transcript, an account manager at a global electronics distributor reported that customers are “just buying anything that’s out there to secure that inventory.” To further reduce reliance on any single market or supplier, a rising share of corporate leaders now utilize multi-vendor or multi-country sourcing.
The global supply chain is driving foreign direct investment into geographies with competitive labor costs and favorable trade policies. Kam identified countries like India and Vietnam as winners in this environment. But even with these diversification efforts, China is growing its sizable export market share, especially in high-value-added products.
Energy Shocks Reshaping APAC Risk Profile
A stark regional divergence in energy security has emerged, with the U.S. remaining relatively insulated from energy shocks while APAC is considerably exposed. Approximately 80% of all global crude and liquefied natural gas passing through the Strait of Hormuz is destined for Asian markets, company documents in AlphaSense show.
Elevated global energy costs are posing challenges to a number of economies. Kam pointed out a historical phenomenon whereby oil and gas consumption as a percentage of GDP tends to peak around 6.5% in Asia. Once energy prices cross this barrier in a sustained manner, “demand destruction starts to happen.” Kam estimated that $120 Brent crude and $30 JKM (LNG prices) for a full year would bring us to the 6.5% threshold.
Regional Exposure Profiles
- Japan: Relies on the Strait of Hormuz for 90% of its crude oil
- South Korea: Sources roughly 70% of its crude imports from the Middle East
- Taiwan: Imports nearly 98% of its total energy consumption
- India: Imports around 87% of its crude and 50% of its natural gas
Global Policy Diverging and Inflation Anchoring
The energy price shocks rippling through Asia have complicated monetary policy decision making. Historically, while developed market central banks have been able to look past energy price shocks, emerging market central banks would usually have to raise interest rates to combat currency depreciation. But Kam said that this clean split no longer holds true.
The focus has shifted from the traditional distinction between developed markets (DM) and emerging markets (EM) to a more important consideration of the initial levels of inflation in each market.
...If inflation has been persistently high in the last few years, it would likely influence inflation expectations, prompting central banks to react and respond accordingly.
As a result, Asian policymakers face a highly differentiated landscape. In Australia and the Philippines, we have already seen rate hikes given trailing inflationary impulses and impact from expensive energy imports, but policymakers in China are contending with weak consumer demand at the starting point.
AI Adoption Emerging as a Growth Engine
In contrast to fears of AI-driven labor replacement, companies and experts see AI and robotics as mechanisms for driving efficiency and workforce supplementation. Kam emphasized that within this paradigm, “AI can help to augment or maybe even lead to productivity gains for white-collar workers, whereas robotics, automation, and humanoids can actually potentially raise the productivity of blue-collar workers.”
This dynamic is considered particularly crucial for Asian economies facing population aging and structural labor shortages. Firms in markets like Japan, South Korea, and Singapore are rushing to implement physical AI and humanoid robots to maintain output and support vital services such as elderly care. By contrast, the automation of repetitive, rules-based tasks poses a greater threat to economies with a greater share of this labor, such as Vietnam.
Another way AI adoption helps as a growth engine is that it is creating a strong demand cycle for Asia’s exports. AI and related infrastructure spending is also catalysing an industrial super-cycle in which Asia stands to benefit from.
Thematic Investing Shaping Capital Inflows
When evaluating APAC markets, capital allocators are increasingly favoring thematic investing over broad macroeconomic signals. Investors are rewarding economies that are closely tied to structural growth drivers.
In particular, AI and national defense have emerged as key catalysts for APAC capital inflows. Kam emphasized that “the adoption of technology and AI enablers” is a powerful growth driver for economies like South Korea and Taiwan. Similarly, geopolitical tensions and energy security concerns are driving investment in defense and renewable energy.
Because of the rising importance of thematics, pressure is high for companies to ensure their public messaging matches investor expectations. As narratives shift in markets, executives will have to continuously refine their positioning.
Stay Ahead of Fast-Moving Markets
In today’s complex, ever-changing environment, information overload can be a challenge even for the most sophisticated analyst teams. AlphaSense simplifies your workflow: Ours is the only tool that combines public and private financial data with expert call transcripts, broker research, and news in one place. By bringing together qualitative and quantitative insights in a single platform, AlphaSense gives you the necessary context to make faster, smarter decisions.
Discover the power of AI-fueled market research, and see how AlphaSense can help you get the competitive edge. Get started for free today.
