Knight Asia Newsletter June 2025
Asian currencies and equity markets rallied in June with the FTSE Vietnam (USD) +2.6% (YTD +18.4%), the MSCI AC ASEAN Index +0.0% (YTD +3.4%), the Hang Seng Index +3.4% (YTD +20.0%), the MSCI Asia Ex Japan +5.7% (YTD +13.1%), but the Thai SET Index (USD) fell -3.9% (YTD -15.3%).
Uncertainty over US trade tariffs remained an ongoing distraction, with China & Vietnam reaching tacit agreements, whilst most other Asian countries enjoyed a brief reprieve to August 1st. We still expect “eleventh hour” deals with Japan, Korea, Thailand and others. The EU, is as ever the prime target, with 30% tariffs slated for August 1st. The US$ remains weak, even as bond yields have risen, this may ultimately be the biggest story. With US government debt at 121% of GDP, vs 87% for the EU and 88% for China, it is easy to see where money will flow. The US$ pegged Hong Kong $, now pays close to zero interest rates vs US$ 4-5%, as Chinese money floods back to Hong Kong to avoid nationalization and/or potential currency controls, as well as systemic risk of default. The HK$ peg is under pressure, as investors arbitrage the interest rate gap: borrowing HK$ at 1% and depositing in US$ at 4%.
We see this as the beginning of a great repatriation of Asian wealth from the US, and is a harbinger of a potential US government debt funding crisis. Foreign investors own US$ 8.5 trillion of the US government’s $28 trillion in debt, climbing +$2 trillion new deficit per annum. As foreigners shy away from new purchases and rollovers, US interest rates will need to rise to attract buyers, regardless of who occupies the Fed Chair. This may still not reverse the declining trend in the US$, as risk ratings rise. A declining US$ would reduce the buying power of the US and have an additional negative effect on exporter economies. However, in terms of stockmarkets, we expect the liquidity surge to be good for HK/China & South-East Asia.
In Thailand, Politics is sadly “back to normal”, with the bureaucratic establishment reasserting itself, and the Thaksin proxy government finding itself obstructed at every turn. No solutions have emerged to boost the economy, or tackle Thailand’s three scourges: Illegal Gambling, Loan Sharking, and Amphetamines. Although Government Savings Bank commenced a promising initiative to provide refinancing loans to 2 million people at 12% per annum. The Pheu Thai plan to legalize casinos has been blocked at least temporarily, much to Macau & Cambodia’s delight, and perhaps partly in response to China’s pressure. Despite this, the overall Thai economy is somewhat resilient as the major Thai conglomerates seem to be in good shape with low cost of financing, but growth languishes as the SMEs struggle.
PM Paetongtarn was suspended from her PM office by the all powerful Constitutional Court, for her handling of the Thai/Cambodia border/Emerald Triangle dispute. The net result being that Cambodia got exactly what it wanted; Naga shares rallied. Pheu Thai’s nominees for Bank of Thailand Chairman and Governor have also been blocked, in favour of “internal appointees”, putting an end to the Thai financial hub initiative. Indeed the Thai banking system is now more regulated than HK, Singapore or UK. Recently overnight with no advance notice, KBANK decided that all foreigners have to do facial recognition, and cannot receive OTPs on mobile phones not in the account holder’s name. Apparently, this is all part of ham-fisted crackdown on “dummy accounts”… Similarly, tourist arrival visas were cut from 60 days to 30 days.
It appears that another election is coming in Thailand, although there may be an interim (Gen Prayut, who enjoys a 32% approval rating !!) premiership first. With growing disappointment over Pheu Thai’s failure to deliver on the economy, we expect People Party (previously Future Forward then Move Forward) to gain ground, although it is still unlikely to capture enough of the rural vote to obtain an overall majority in Parliament. So a coalition government may still be necessary, if Pheu Thai dares !
If PP does somehow secure a majority in Parliament and chooses the PM, we can expect their work to focus on social rather than economic issues. However, it would generate a surge in domestic confidence and engagement from less authoritarian countries such as Australia, Korea, Philippines, non-country Taiwan, and other quazi democratic countries in ASEAN. Intra-Mekong relations would likely suffer. They say it is always “darkest before dawn”, in that sense we do recommend loading up on Thai stocks, which are undervalued with high dividend yields, and probably reflect all the bad news at this point.
With Best Regards
JEREMY