Knight Asia Newsletter May 2025
Asian currencies, and to a lesser extent equity markets rallied in May with the FTSE Vietnam (USD) jumping +12.5% (YTD +15.4%), the MSCI AC ASEAN Index +3.5% (YTD +3.4%), the Hang Seng Index +5.3% (YTD +16.1%), the MSCI Asia Ex Japan +5.0% (YTD +7.1%), but the Thai SET Index (USD) fell -1.9% (YTD -11.9%).
Ongoing US trade deal negotiations preoccupied investors. Although President Trump seems to have moderated his earlier demands, and indicated that agreements are imminent “DONE !”, the “devil is in the detail”. Infact we expect broad principles will be agreed on early on, sufficient for tariffs to be put on hold, but definitive agreements may take months or even years. China will probably insist on US boycotts on the likes of Huawei on security grounds to be reversed, and the US will demand reliable supplies of rare earths for their tech and military; whilst the EU will stick to environmental and human rights supply chain rules, which US sourced products would struggle to comply with. Adding to the uncertainty are a series of court challenges to the legality of the tariffs.
The US$ has continued to weaken, even as bond yields have risen. Our expectation that emerging Asian countries would allow their currencies to appreciate in order to narrow the gap between nominal GDP and PPP GDP, is beginning to bear fruit. The Taiwan dollar is leading the way, but others are just matching the non-US$ basket. The US$ pegged Hong Kong $, oddly now has a virtually zero interest rates vs US$ 4-5%. This is really the biggest story in finance, but isn’t getting much coverage. It indicates that Chinese money is being repatriated to Hong Kong to avoid nationalization and/or potential currency controls, as well as systemic banking system risk. The Hong Kong stockmarket is trading at a very low valuation, and should rally substantially when all this liquidity is put to work.
The federal deficit on the other hand, will be hard to finance domestically, so it’s just a matter of time until the Federal Reserve has to re-enter the US bond market, possibly triggering a new bout of high inflation. The US & EU seem to be heading for recession or ongoing stagflation for the next few years, just as China is coming out of its property slump.
Trade tariffs had diverted some US attention away from geopolitical flashpoints, until Israel suddenly attacked Iran, putting this conflict front and centre. The impact on Asia should be limited, with Iranian oil supplies not a major factor. Other Middle east countries will likely stay on the fence, and secretly be happy if this triggers a regime change in Tehran. Meanwhile the Russia / Ukraine war seems set to continue. Ukraine’s drone attack on Russian bombers was a brilliant military operation, but may have sabotaged the planned peace talks, deliberately or otherwise. UK’s PM has struck an absurdly hawkish tone, putting UK “on a war footing” seeking to match Germany’s military buildup. Maybe this pitiful actual GBP 6 billion increase in military spending was part of the US trade deal.
In Thailand, Political uncertainty is weighing on sentiment, as old powers try to encircle Thaksin, including an alliance between former yellow shirt leader Sondhi and former red shirt leader Jatupon. We are still optimistic that the “hospital court cases” will go in Thaksin’s favour, otherwise a new election might be called. This could result in a landslide result in favour of People’s Party (formerly Move Forward, formerly Future Forward). In many “conservative” eyes, Thaksin’s Pheu Thai is the “lesser of two evils”. Adding to the confusion, a theoretically minor border conflict has erupted between Thailand and Cambodia, over longstanding overlapping claims. It is hard to see either side having much to gain, except that it stirs nationalism in Cambodia side, and gives the Thai military an opportunity to flex its muscles a bit. It also creates a headache for the Thai PM, Interior Minister & Defense Minister. With this backdrop, the Thai stockmarket continues to sink, now down almost -19% YTD in local currency (-11% in US$). Bargains abound, especially in the banking & property sectors.
In Myanmar, Yoma’s Chairman, Serge Pun was quietly released from detention, probably on health grounds. Having been held for over a year for money-laundry & illegal foreign property financing. Meanwhile, the junta is promising multi-party elections in December this year or January next. About 50 parties have registered with the military backed USDP likely to win a majority, after NLD allowed its registration to lapse. However, several provincial parties will feature, especially in the larger semi-autonomous states, such as Shan, Kachin & Mon. Also some former Thein Sein government heavyweights such as U So Thane may be brought back; and some former NLD senior party figures may re-emerge under other party banners.
Somewhat superfluously, President Trump put a USA visit ban on Myanmar nationals, one can only guess that someone in the bureaucracy added Myanmar to the list because of human rights issues or drug trafficking. On this topic, Thaksin threatened military action vs The Red Wa in Shan state for complicity in amphetamines production, if the Tatmadaw does not. Given that China supports the Wa, we think such action is unlikely.
With Best Regards
JEREMY