Multi-Asset Insights

Sustained oil shocks will widen dispersion across Asian markets, weaken the value of intra-regional diversification, and favour markets with stronger buffers and technology exposure.

• A one-standard-deviation oil shock is associated with about a 0.5% next-day decline in the Asia ex-Japan equity index; investment-grade credit is more resilient, while local-currency bonds and currencies fall between credit and equities in sensitivity.
• Korea and Taiwan have been the most sensitive equity markets to oil, volatility and dollar shocks, whereas China, Malaysia and Singapore have been more resilient; Korea, Thailand and Australia have been especially vulnerable in rates and foreign exchange.
• The 2022 episode showed that 12-month inflation forecasts rose about three months after oil began climbing and continued rising for three to five months after the June 2022 peak, while GDP downgrades started three to four months later and continued for roughly two quarters.
• Since the conflict escalated, correlations between Asian growth assets and oil have become more negative, while correlations among Asian asset classes have risen, with many pairwise coefficients above 0.5, reducing the protection offered by switching between regional equities, credit and rates.
• In a de-escalation scenario, Taiwanese and Korean equities, TWD and potentially KRW should outperform on the AI and semiconductor cycle; in a re-escalation, Philippine and Thai assets would be pressured by oil-import dependence, wider deficits and tighter monetary policy, while China would remain relatively resilient.

Takeaway: Investors should emphasise selective, cross-regional and non-oil-sensitive exposures rather than assume Asian assets diversify one another; the most attractive outcomes depend on de-escalation and continued AI strength, while persistent conflict would favour markets with policy capacity, reserves and domestic energy resilience.