Knight Asia Newsletter August 2025
Asian equity markets traded higher in August, 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%).
As global markets continue to digest the effect of higher US tariffs, the most clear impact seems to be on the US$ which continues to weaken, as Asian governments and investors slowly repatriate their investments from US capital markets, and markets begin to prepare for a US federal deficit funding crisis. Foreign investors own US$ 8.5 trillion of the US government’s $28 trillion in debt, and as foreigners shy away from new purchases and rollovers, US interest rates will need to rise (after temporary short-term cuts to satisfy the President) in order to attract buyers, and this should trigger a large market correction. This may then be followed by another round of QE to prop things back up.
As Asian investors reallocate to better value equities and lower risk bonds at home, this is leading to rising Asian stock markets and improved local liquidity in most Asian markets. Meanwhile, Vietnam has gone the other way, quietly devaluing its currency -8.5% this year, against a weakening US$, without much criticism. It is now hugely competitive vs its neighbours, especially Thailand where the Baht has appreciated +4.5% YTD (which some Thais blame on Cambodian gold buying !!).
Asian countries continue to diversify away from US trade dependency. Ironically, because it was supposed to be the target, the biggest winner appears to be China, which as the only adult in the room, is consolidating a paradigm shift involving not just South-East Asia and Russia, but even warming relations with its geopolitical rival India. Although we expect the world to remain tri-polar, the coming western fiscal debt crisis may further cement China’s economic hegemony as the primary pole. Politically, AI seems set to consolidate wealth and power in the hands of the business elites (in US, Middle-East, South-East Asia); and bureaucratic socialist elites (in Europe & Japan); and Confucian hierarchies (in China & Vietnam). Although there are still some who dream of equalitarian utopia !
In Thailand, on 29 August Prime Minister Paetongtarn’s Shinawatra was officially removed as PM for her handling of the Thai/Cambodia border dispute by the all powerful Thai Constitutional Court. Her Pheu Thai Party then attempted to dissolve parliament to call new elections, but legal experts ruled that caretaker PMs do not have the power to propose dissolution. This left the door open for Anutin Charnvirakul to step up as Thailand’s 32nd prime minister supported by the People Party (PP). PP formed this temporary alliance on the condition that PM Anutin must call a new election within four months and progress at least the first referendum vote on constitutional reform. PP has not actually joined the coalition government with the Bhumjaithai Party thus giving Anutin and his backers, fairly free reign to allocate ministries.
Whether the election really happens within four months remains to be seen, especially since the PP has handed BJT the perfect excuse to delay: constitutional reform which typically could take several years. Currently, there isn’t even clarity on whether two or three referendums would be needed, and any referendum law would requires 1/3 support of the totally independent 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.
Anutin’s appointment was followed by the Supreme Court ruling that Thaksin Shinawatra had not properly served his one year commuted sentence for earlier “convictions” whilst residing at the Police General Hospital. To everyone’s surprise, Thaksin returned from Dubai to receive the verdict in person, and was bundled off to Klong Prem Central Prison. However, Thaksin’s massive contributions to Thailand, including introducing universal healthcare, building the 70 million capacity Suvarnabhumi Airport, and expanding the Thai capital market with the listing of PTT and AOT, may yet lead to a reduction of sentence and/or house arrest.
With the Pheu Thai Party thus knobbled and up to 75% of Thai people disillusioned with domestic politics according to recent polls, the stage seems to be set for a landslide victory for the PP (formerly Move Forward and Future Forward which were both dissolved) in the next election. This prospect must be daunting for mid-ranking establishment figures, and we can expect various measures to be taken to weaken the PP in the next 4-24 months. Already 44 PP MPs face charges of lese-majeste. However, if PP still wins an overall majority in Parliament and is allowed to form a government, such a PP government might not last long, but would be a breath of fresh air to democratic and quazi-democratic countries, and lead to major capital inflows into Thailand. This might be the boost the moribund Thai economy needs, and for that reason alone their win could be tolerated for a while.
With Best Regards
JEREMY