Knight Asia Newsletter October 2025 and Themes for 2026

Asian equity markets firmed up further in October with the MSCI Asia Ex Japan up +4.4% (YTD +30.3%), the Thai SET Index (USD) up +3.3% (YTD +3.0%), the MSCI AC ASEAN Index up +1.1% (YTD +10.1%), but the Hang Seng Index was down -3.5% (YTD +29.1%).

Last month, global markets consolidated without the traditional October blues setting in. Donald Trump’s trade negotiations, increasingly tied to peace initiatives, dominated the headlines. Markets were encouraged by progress in China / US trade discussions and tariff postponements, such as port charges. Clearly the US/China economies are still joined at the hip, but with a more mutual dependency than pre-2000. President Xi Jinping toured the region even more extensively than President Trump, including chairing the first official meeting of the RCEP trade block.

Stockmarkets have generally had a good year with China/HK & European indices leading the polls up +20-40%. NASDAQ trailed with just +18% YTD, but at these valuations it is easy to see why. In fact all the gains in markets were skewed by tech heavy components. The markets with no tech leaders, such as Philippines (-13% YTD, 9.6X PE), Thailand (-9% YTD, 8.6X PE), and Malaysia (-4%, 16X PE), prove this point.

Next year should see the AI bubble burst or at least the froth come out of the tech sector. If a full crash, then there may be nowhere to hide, but if just a major rotation, then a shift from DM to EM, and tech to value could still present opportunities. There are still incredible non-tech bargains in HK, Thailand, and the Philippines in more traditional areas such as agribusiness, banking and property, healthcare and tourism.

However, if the AI correction coincides with a government fiscal crisis in Europe & the US, the flight to safety will be more devastating. Asian governments and private investors continue to 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%, and UK -4.9%, 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, they should be relative safe havens, with interest rates almost 50% lower than in the west, and their average total government debt to GDP is about 60% vs 100%+ in the west (with declining tax bases). The worst 2025 budget deficits in Asia are China -5.9% (identical to the US), Thailand -5.8%, and the Philippines -5.4%. The difference is that Asian deficits are largely funded domestically, unlike the US & UK which depend significantly on foreign flows. Goodwill and confidence in US and UK bonds have become depleted.

One wild card is the Ukraine/Russia War, which could end next year after Russia occupies the remainder of the Donbas. Counter-intuitively we surmise that oil and gas prices may rise after a peace deal, since Russian energy exports would no longer need to be sold at below market prices. The inflationary effect could exacerbate interest rate pressures amid government fiscal problems.

In Thailand, preparation is underway for an election early next year. PM Anutin Charnvirakul and his Bhumjaithai party have just two months left to prove themselves. Playing the nationalist card in the Cambodia border conflict will only get them so far. Although over 30% of voters claim to be undecided, I suspect they will come down on the side of People Party, which offers a newer approach. It is also possible that BJT and Pheu Thai may split the upcountry vote in some constituencies, which could hand PP a majority in parliament. If PP forms the government in early 2026, it could trigger a wave of optimism and foreign investment. However if they achieve less than 251/500, then most likely we’d see a repeat of 2023 with all the other parties forming a coalition to block PP. In this scenario, PM Anutin may return to Government House.

Myanmar also aims turn a new page or at least half a page, with a general election scheduled to come this December/January. Although it may take place in just 60% of the country, and has been boycotted by the main opposition parties, any election is better than none. Re-engagement from Japan, South Korea, Taiwan, Singapore and Thailand could be enough to kick-start the economy. China will also continue to expand its economic and geopolitical presence there. Even the US could become less hostile in the vain hope of buying rare earths from Kachin and Shan States.

In Cambodia, our rice company continues to develop nicely ( BRM Agro: Transforming Cambodia’s Rice Industry ). Sales are mostly to Europe, and located on the East side of Ton Le Sap Lake, so unaffected by Thai/Cambodia border friction. BRM aims to expand milling capacity to 100,000 tons per annum by the end of next year, ahead of public listing.

With Best Regards

JEREMY