Knight Asia Newsletter February 2026
Asian equity markets began the year well with the MSCI Asia Ex Japan up +5.8% (YTD +14.4%), the Thai SET TR Index (USD) up +18% (YTD +23.9%), the MSCI AC ASEAN Index up +3.3% (YTD +6.8%), and the Hang Seng Index down -2.8% (YTD +3.9%).
Most Asian markets, excluding Hong Kong, performed well in February with Thailand leading the pack post its national election. Then the Israeli/US “special operation” in Iran torpedoed the Thai rally, and gains literally went up in smoke. Even though the attack was well telegraphed in advance, it seems that AI trading programs that dominate markets are entirely reactive, and did not factor in the predictable jump in the oil price. Humans are still superior when it comes to reading between the lines and making educated guesses.
This human predicts that Asian markets will bounce straight back in a “V” shaped recovery, once the operation soon winds down and oil prices fall back, (unfortunately very likely without any regime change, but proudly achieving complete degradation of the Iranian military capability). The collateral damage to Gulf nations cannot easily be tolerated by the global economy, so the operation is facing mounting pressure to end soon. Percentages of oil consumption sourced from the Gulf are as follows: Japan (90%), India (45%), and China (35%). For South East-Asia its approximately 30%, but higher with Vietnam 70%, Thailand 50% and the Philippines 90%. These countries suffer the most from the interruption of oil transportation via the Straits of Hormuz. This is somewhat mitigated in the case of Japan, China and Thailand by their enormous strategic oil reserves (averaging about 60 days of domestic demand).
The US might not mind hurting China’s economy, but Japan is a staunch ally. US Gulf friends such as UAE, Qatar and Saudi Arabia are fuming that the Trump brought this upon them. Oil supply disruption also plays straight into Russia’s hands as the world begs for alternative supplies of fuel. Putin is the king of fossil fuels again! Geopolitically, some may think the US gains by flexing its muscles vs Iran, but most in Asia think it’s misguided. The Iran military campaign will only increase US isolation. We just hope that they focus on Cuba next rather than somewhere else in Asia. President Trump may become increasingly preoccupied by domestic challenges with mid-terms fast approaching in November. Loss of Republican control of Congress in the mid-terms would frustrate his remaining two years in office.
Meanwhile, liquidity in Asia remains strong, as wealthy families and governments continue to repatriate money from the US tech bubble. This will likely accelerate as disillusionment spreads with regards to US activities both military and in trade. Most Asian countries have interest rates far below the US and EU, so the returning liquidity may eventually power the stock market where share yields are either double or triple that of bonds, and 10x that of bank deposit rates. But beware of companies that have a history of panic-hedging their oil/resource needs.
The new Thai government coalition is now close to formation, and cabinet positions unofficially largely filled. We hope that it plays to Thailand’s strengths: promoting lifestyle services, tourism, food processing, automotive, whilst re-invigorating domestic spending and medium/low cost residential property. Somehow actual consumer interest rates need to come down from 20-50% in-unofficial lending, 18% for credit cards, 10%+ for SMEs and 6%+ for mortgages. The Central Bank rate of 1.25% really only benefits a handful of large corporates. Possibly the new digital banks such as telecom companies AIS (partnered with KTB), and True (accessing the 7-11 branch network) may chip away at loan-shark dominance upcountry. Liberalization of banking controls and financial services should occur domestically and vis-à-vis foreigners.
With Best Wishes
JEREMY