Asian Equity Currency Divergence Splits a Region in Two

The Asian equity currency divergence playing out across emerging markets has become 2025’s defining macro tension: the MSCI Emerging Markets Asia index has climbed 15% in the first five months of the year, while currencies from Jakarta to Mumbai slide toward multi-year lows.

The pressures are unevenly distributed but consistently severe. Indonesia, the Philippines and India have shed 8.5%, 9.5% and 10.5% respectively against the US dollar over the past 12 months. Bloomberg commentators Swati Pandey and Claire Jiao have drawn comparisons with the 1997 Asian financial crisis, when large trade deficits caused investor confidence to ‘evaporate within months’, triggering ‘deep recessions’ and political upheaval. The Strait of Hormuz crisis is compounding the pressure on energy importers, even as semiconductor exporters ride the AI wave in the opposite direction.

The Philippines as a Canary

The Philippines is the most instructive stress test. A Southeast Asian growth star through the 2010s, the country now faces inflation running at 7% and heading for double digits, a surge from 2% in January. The local PSEi share index has fallen 5.6% over the past three months. Daniel Moss on Bloomberg has argued the Philippines’ difficulties may signal what lies ahead for peer economies carrying similar current-account exposures.

South Korea and the Asian Equity Currency Divergence Paradox

The Asian equity currency divergence in Korea takes an especially counterintuitive form. The Korean won is trading at its lowest level against the dollar since the 2008 financial crisis, when it reached W1,467.80 per dollar on 28 October of that year, according to an Asian Development Bank working paper. The paradox is that Korea is simultaneously running a record trade surplus, driven by global demand for its computer chips: an export boom that would ordinarily be expected to support the currency.

The explanation may lie in the equity boom itself. The Kospi index has doubled since the start of the year on the back of Samsung and SK Hynix. Fund managers, forced to rebalance to avoid overexposure, have offloaded a record net $79 billion of local equities this year. Capital flows out; the won follows.

Taiwan’s Numbers Are in a Category of Their Own

Taiwan’s Taiex index has gained 58% this year, surpassing India to become the world’s fifth-largest stock market. The island, only slightly larger than Belgium, now accounts for almost a quarter of the entire MSCI Emerging Markets index. At the centre of it all is TSMC, which held a 72% global market share in advanced chip manufacturing in 2025 and is projecting over 50% annual growth for AI-related chips, according to market research group IndexBox.

The macroeconomic numbers match. Taiwan’s GDP expanded 8.63% for the full year 2025, its fastest pace in 15 years, according to Reuters. The fourth quarter saw year-on-year growth of 12.7%, up from 8.4% in Q3 2025, according to FocusEconomics. The 23.6% figure cited in some accounts of Q4 represents a quarter-on-quarter annualised rate rather than the year-on-year comparison. By either framing, the pace is extreme: Taiwanese GDP has risen by almost a quarter since ChatGPT was launched in late 2022.

Writing on Substack, Joseph captured the structural logic bluntly: when 30% of your economy is ‘based on shovel manufacturing’ during a gold rush, the aggregate figures follow. Not every Taiwanese household is prospering — exporters are thriving while domestic consumers face their own pressures — but there is little arguing with this modern growth ‘miracle’.

What the Setup Suggests for the Second Half

The Asian equity currency divergence is unlikely to resolve quickly. Capital continues to rotate into semiconductor-linked economies, applying downward pressure on currencies in the energy-import-dependent bloc. The 1997 analogy is imperfect: current-account deficits are generally smaller now and reserve buffers are deeper than they were then. But if the Strait of Hormuz crisis persists and energy import costs keep rising, the floor for the Indian rupee, the Indonesian rupiah and the Philippine peso will continue to be tested.

For investors already positioned across the region, the second half turns on two questions: whether the AI-driven earnings cycle can sustain the pace that has already repriced Taiwan and Korea to record multiples, and whether currency losses in the weaker economies begin to erode the dollar-denominated returns that foreign fund managers actually bank. The former question probably has another quarter of runway. The latter is live now.