Asia’s red-hot artificial intelligence boom is fuelling a stock market rally that has pushed the MSCI Emerging Markets Asia index up 15% in the first five months of the year, but on currency markets the mood is dark. The crisis in the Strait of Hormuz is hammering energy importers, while a handful of economies are emerging as the clear winners of the global AI frenzy — creating a divide that is becoming starker by the day.
AI Boom Powers Asian Stock Markets
The epicentre of the AI-driven surge is Taiwan. Taiex, the island’s benchmark index, has gained 58% this year, propelling it past India to become the world’s fifth-largest stock market. Taiwan, which is only slightly larger than Belgium, now accounts for almost a quarter of the entire MSCI Emerging Markets index. As of April 2026, its weighting had surpassed China’s to become the largest in the index, at 24.8% compared with China’s 23.1%, reflecting global investors’ hunger for exposure to advanced chip manufacturing.
Taiwan Semiconductor Manufacturing Company, or TSMC, produces almost all of the world’s high-end chips, and the island’s economy is reaping the rewards. Official data show Taiwan’s real GDP grew at an annualised pace of 23.6% in the final quarter of 2025, the fastest since the third quarter of 1987. For the full year 2025, GDP expanded by 8.68%, with a further 7.71% projected for 2026. The manufacturing sector — particularly semiconductors, computers, electronics and optical products — grew by 24.68% in the fourth quarter, while exports of goods and services surged 38.81%, driven by emerging technologies like AI. Since the launch of ChatGPT in late 2022, Taiwan’s GDP has risen by almost a quarter.
“When there’s a gold rush, it’s good if 30% of your economy is based on shovel manufacturing,” wrote analyst Joseph on the Substack platform, describing Taiwan’s modern growth “miracle”. Not everyone is benefiting — exporters are thriving while the rest of the economy struggles — but the scale of the boom is hard to dispute. The global AI market is projected to reach $1,180bn by 2029, with the AI software market alone forecast to grow from $174.1bn in 2025 to $467bn by 2030, underpinning demand for Asian semiconductors.
Currency Markets Under Pressure
Yet while stock markets soar, several Asian currencies are in freefall. Talk is turning to the 1997 Asian financial crisis, when large trade deficits caused investor confidence to “evaporate within months”, triggering “deep recessions” and political tumult, according to analysts Swati Pandey and Claire Jiao at Bloomberg. Indonesia, the Philippines and India look especially vulnerable to capital outflows. Their currencies have shed 8.5%, 9.5% and 10.5% respectively against the US dollar over the past 12 months.
The Philippines has been hit particularly hard, says Bloomberg columnist Daniel Moss. A Southeast Asian growth star in the 2010s, the country now faces inflation running at 6.8% in May 2026 — down from 7.2% in April, which was the highest since March 2023, but still well above the government’s 2-4% target. Inflation had been as low as 2% in January and is now heading towards double digits. The local PSEi share index is down 5.6% over the past three months, a sign of deepening trouble that could foreshadow difficulties elsewhere.
India’s rupee has been the worst-performing currency in Asia in 2025 and has continued to slide in 2026, depreciating by more than 7% so far this calendar year. Experts predict it could touch 100 to the dollar if the pace continues. The Reserve Bank of India has intervened with dollar sales to halt the slide and is considering other measures such as interest rate hikes and currency swaps. Factors behind the weakness include global headwinds from US tariff hikes, record portfolio outflows, a record trade deficit, surging gold imports and persistent current account deficits. Corporate calls mentioning “rupee depreciation” and “hedging” have reached the highest level in almost eight years.
The 1997 Asian financial crisis, which began in Thailand after a decline in exports triggered a loss of confidence in pegged exchange rates, spread rapidly to Indonesia, the Philippines, Malaysia and South Korea. Indonesia’s economy contracted by nearly 14% in 1998; South Korea’s economic reversals surpassed anything since the Korean War; and the Philippines saw growth drop to virtually zero. The current crisis in the Strait of Hormuz, and the broader Middle East conflict, is exacerbating pressures by keeping energy prices elevated, particularly hurting oil-importing nations such as India.
South Korea: The Export Paradox
Nowhere are Asia’s contradictions as stark as in South Korea. The won is trading at its lowest level against the dollar since the 2008 financial crisis, according to William Sandlund and Daniel Tudor in the Financial Times. The won-dollar rate topped 1,500 won on 15 May 2026, its weakest in about a month, and has traded above that threshold for 14 consecutive sessions. Yet puzzlingly, Korea is enjoying a record trade surplus because of insatiable demand for its computer chips. An export boom should be strengthening the won, not weakening it.
South Korea’s semiconductor exports to China jumped 243% in May 2026 compared with a year earlier, driven by AI demand. That has helped swing South Korea’s trade balance with China into a surplus of $3.8bn in May, a dramatic turnaround from a deficit in December 2025. Overall, the country recorded a current account surplus of approximately $28.3bn in April 2026, the second-largest on record, largely thanks to what analysts describe as a “semiconductor super cycle”. South Korea has now posted a current account surplus for 36 consecutive months since May 2023.
Paradoxically, one explanation for the won’s weakness lies in the blistering pace of the very stock market boom that the chip sector has fuelled. The Kospi index has doubled since the start of the year, driven by large runs at chip specialists Samsung and SK Hynix. That has forced fund managers to sell to avoid overexposure, with foreign investors offloading a record net $79bn of local equities this year. In May alone, foreign net outflows reached approximately $22bn, potentially a record single-month figure, and cumulative year-to-date sales hit $60bn. The selling pressure is concentrated on the very semiconductor firms that are driving the export bonanza — Samsung Electronics and SK Hynix. The Kospi’s volatility index has climbed close to levels not seen since previous periods of severe market stress, underscoring the tension between real economic strength and financial market dynamics.
