Knight Asia Newsletter August 2026
Asian markets firmed up in August with the MSCI Asia Ex Japan up +3.2% (YTD +24.6%), the MSCI AC ASEAN Index gaining +2.0% (YTD +8.4%), the Hang Seng Index slipping -1.2% (YTD -0.2%), the Thai SET TR Index (USD) stable at -0.1% (YTD +24.9%), and FTSE Vietnam up +5.4% (-0.8% YTD).
Global strategists shifted their attention to the US Government debt surpassing US$ 40 trillion, and rising long-dated bond yields. We have warned for several years that with declining Asian appetite for US bonds, the US government will need to borrow domestically, and the Fed may lose control of interest rates. This appears to be happening now, and is not to be under-estimated. 30YR bond yields have now surpassed 5.2%, and the 10YR is 4.8% (vs 2.1% for Thai 10YR government bonds). The ongoing Iran war debacle has been reinforcing this upward spiral of interest rates, through high energy prices and headline inflation, and at some point the trend may become self-perpetuating. With interest rates in the West now at 2008 global financial crisis levels, Gold & Bitcoin rallied on talk of the US treasury buying back its own treasury bills.
Amazingly, although US and UK bond markets are in free fall, the US equity markets are holding up, and there is still an appetite for AI related stocks at sky high multiples, on extravagant forecasts, and riddled with artificial earnings from intra eco-system cannibalism. We’ve seen it all before. Although it hasn’t happened yet, the collapse of tech stocks will probably be triggered by an interest rate panic and funding halt. Rotation into “analog” value stocks may follow post sell-off with the Thai market being our top choice. Thai listed company’s 2nd Quarter earnings were encouraging at +13% with 5-8% yields further underpinning the undervalued stock prices. Also, although the Thai economy itself remains generally lackluster, local liquidity is strong, and high end residential property prices are hitting all-time highs (US$ 15-25,000 per sqm).
Meanwhile, many governments in Europe & Asia are seizing the opportunity to adopt AI tools/”passports”, ostensibly to engender efficiency, but also conveniently centralizing information and control. The problem with this is that it risks making bureaucrats obsolete, so they’ll need to proliferate even more new rules to remain relevant. In UK & Europe, taxes and spending are also on the rise, to fund militarization against perceived threats, and to replenish armaments given away to Ukraine. This will further tighten the liquidity in the developed world.
Asian countries, even those dependent on Gulf oil have weathered the recent oil shock surprisingly well, although many are racking up large losses on energy subsidies. Probably up to half the Gulf’s 20m barrels per day is still finding its way out via Saudi or Oman, and Asian governments have been tapping their reserves, as well as lining up alternative supplies from Russia, Canada, and Australia. There is some back-lash against the proliferation of data centres, taking too much power from the grid. Bangkok Governor Chadchart has suspended new licenses for the time being, as the number reached 40 in Bangkok alone. No one is addressing the real potential health risk of a 100 fold increase in low energy micro-frequency radio waves, in theory harmless as non-ionizing (low energy).
Thailand has been cosying up to Myanmar, with a view to expanding natural gas off-take from there. On the back of this, Myanmar leader, Min Aung Hliang is enjoying something of an international honeymoon, touring Thailand, China and this month Vietnam. Cambodia/Thailand have commenced UN sponsored talks on their maritime borders, crucial to the long-term supply of natural gas to both countries. We don’t expect an immediate breakthrough, but the international make-up of the two teams is promising. PM Anutin has also been active on the diplomatic front, visiting Indonesia & Vietnam amongst others, and hosting the Singapore PM with MOU signing.
With the US remaining trapped in a war they can’t seem to win by remote, the best thing we can hope for is that the post mid-term elections in November that the House cuts off the funding of the US war in the Gulf and that Trump declares “Victory” and winds it back, thereby enabling an uneasy reopening of the Straits of Hormuz. To save face, they would probably maintain economic sanctions on Iran. At least Thailand is benefiting from the R&R, as 5,000 sailors from USS Abraham Lincoln just arrived in Pattaya having been at sea without any shore calls for nine months. Thailand cut tourist arrival visas from 60 days to 30 days, which shouldn’t affect tourism too much, except for those of us with non-Thai children.
There has been a lot of commentary on the likely effects of El Nino this year and next. Weather patterns in the Mekong Region point to likely flooding rather than fires as in Europe. Generally it is better to have too much water rather than too little, but it does require careful monitoring. Water management is theoretically better now in Thailand than it was back in the great flood of 2011, (when Bangkok Bank had 3 metre high sand-bag walls around its entire head office!). There have been some large new drainage tunnels built, and the reservoirs are only 60% full, so Bangkok may be ok. However, up-country reservoirs and rivers are already bursting their banks, and in Myanmar much of the Irrawaddy Delta is 2-3 metres deep from flooding which the international press seems to be unaware of.
Although some analysts say overall forest fires are predicted to affect 1.5% of the global landmass this year, which is -40% less than last year, the impact of drought and fires in Europe and Canada is severe. Wheat prices have soared over +50% YTD to US$ 780 per ton. Rice prices have yet to catch up, catering to a different market.
There are plenty of challenges facing investors as we approach the final quarter of the year. Safe havens such as gold, tropical agriculture and tourism in neutral countries seem to make the most sense for the time being.
With Best Regards
JEREMY