A sharp geographical divide is opening in Asian equity markets as investors favor nations capable of weathering a global energy supply shock. Goldman Sachs reports a "massive outperformance" of North Asian markets over their southern neighbors, driven by high concentrations of technology stocks and robust energy buffers. South Korea has gained more than 80% year-to-date, while Indonesia’s market has fallen 25% due to fiscal vulnerability and a lack of tech exposure.
Energy and AI resilience
The gap is widening because North Asian economies in Taiwan, South Korea, and Japan possess the fiscal capacity to absorb higher oil and gas prices. In contrast, South Asian nations lack the buffers to offset the pass-through of energy costs to their domestic economies. Technology remains the secondary lever for this divergence:
- Taiwan’s index is 80% tech-oriented, while South Korea stands at 60%.
- Japan is attracting interest through AI robotics and political stability following the election of Prime Minister Sanae Takaichi.
- Chinese A-shares are outperforming Hong Kong-listed H-shares as producer price inflation turned positive for two consecutive months.
The inventory cliff. The relative safety of North Asian markets faces a looming test as global oil inventories hit a critical threshold. HFI Research warns the oil market will reach a "point of no return" by the first week of June if the Strait of Hormuz remains closed. Brent crude has remained above the $100 mark for a month, but analysts suggest a transition from price resilience to "real panic" and hoarding if supply disruptions are not resolved.
The U.S. and other nations have mitigated the disruption by drawing down crude stores, but these reserves are finite. The Energy Information Agency reported U.S. stocks fell by 67 million barrels between early April and May 8. If the current pace of depletion continues, researchers expect excess U.S. supply to be exhausted by the end of June.
HFI Research anticipates a higher oil price setup that could see crude test $150 a barrel if the Strait remains closed into June.
