Knight Asia Newsletter September 2025
Asian equity markets firmed up in September, with the MSCI AC ASEAN Index up +3.4% (YTD +9.0%), the Hang Seng Index up +1.5% (YTD +25.0%), the MSCI Asia Ex Japan down -1.1% (YTD +17.0%), and the Thai SET Index (USD) up +1.5% (YTD -3.0%).
Last month, global markets shrugged off the many economic risks, and the US$ stabalized, but Asian governments and private investors continued to slowly repatriate their investments from US capital markets, to reduce their exposure geopolitically and ahead of a potential US federal deficit funding crisis. The US is not alone in facing ballooning deficits and potential fiscal crises & government shut-downs. The highest Western 2025 budget deficits are The US -5.9% (cumulative128% of GDP), France -5.7%, UK -4.9% (EU average cumulative 88% of GDP), with rare surpluses in Norway, Denmark & Switzerland. France may need a bail out soon, so might the UK.
Whilst many Asian countries are also running deficits, their average total government debt to GDP is about 60%, with the exception of China & Japan where sovereign/local government debt is over 200% of GDP on a gross basis (but probably less than 120% net of liquid assets). The worst 2025 budget deficits in Asia are China -5.9% (identical to the US), Thailand -5.8% (but total less than 60% of GDP), Philippines -5.4%. The difference is that Asian deficits are largely funded domestically, unlike the US which depends on foreign flows. Goodwill and confidence in the US is becoming depleted.
Part of the cause, is the ongoing China & US shadow boxing. Pres Trump may have been correct that the US market had previously been taken advantage of, but the quid pro quo was that surpluses were reinvested in US treasuries. Foreign institutional and sovereign wealth investors still own over US$ 8 trillion of the US government’s $28 trillion in debt or almost 1/3 of the o/s, but are likely to shy away from new purchases and rollovers. The so-called reciprocal tariffs and other taxes, have triggered “reciprocity” in China which imposed its own port taxes, and further restricted export curbs on rare earths. The multiple upcoming summits around other group summits next month, between Pres Trump & Pres Xi are likely to go ahead, but the relationship is looking increasingly fraught.
Markets are overheated in almost every category, and a popping of the bubble in stockmarkets, crypto & gold appears to be imminent. Investors are advised to be as liquid as they can be. Hong Kong and Thailand remain relative value safe havens, but would not be entirely spared the crash.
Meanwhile Vietnam has quietly devalued its currency vs US$ this year, and by -18% vs the Thai baht in the last two years. Whilst Thai leaders are distracted by the border squabble with Cambodia, and plan to hold a referendum on whether to repudiate the 2000 Land MOU 43, and the 2001 Maritime MOU 44, Vietnam is eating Thailand’s lunch. On agribusiness, manufacturing & tourism, Vietnam has become hard to beat.
In Thailand, Anutin Charnvirakul has settled in as Thailand’s new prime minister, appointing a number of key technocrats rather than politicians to key ministries such as Commerce and Finance. We still doubt that PM Anutin will call a new election within four months. Either the Senate or first referendum vote on constitutional reform will probably delay it, as might the Cambodia MOUs. Any constitutional referendum law would requires 1/3 support of the conservative Senate. We would not be surprised if this government lasts for over one year, or even until the end of the remaining two year term. This will give re-installed Democrat Party leader, Abhisit Vejjajiva, a chance to attempt to retake Bangkok, lost after the 2010 military crackdown on their watch.
Myanmar’s general election is scheduled to come first in this December/January.
Elsewhere in the region, President Prabowo took the unusual step of offering 20,000 Indonesian troops to join the Egyptian peacekeeping force in Gaza. Sadly, it is unlikely that the ceasefire will last long enough for them to be deployed.
With Best Regards
JEREMY