Fx Surge Counters Trade Anxiety as Global Funds Chase Asian Stocks

Global investors are increasingly returning to Asian stock markets, drawn by the combination of strengthening regional currencies and resilient corporate earnings, even as worries linger over how higher U.S. tariffs might impact Asia’s broader economic outlook.

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For three consecutive weeks, investors have been net buyers of stocks in Asian emerging markets (excluding China), marking the longest stretch of inflows into these markets in over a year. Over the past month, the MSCI index tracking Asian stocks outside Japan has surged nearly 16%, outperforming the global equity index, which has climbed only about half that amount.

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“Whenever Asian currencies strengthen, we typically see capital flowing into the region,” explained Suresh Tantia, Asia Pacific strategist and chief investment officer at UBS Global Wealth Management in Singapore. According to Tantia, stronger local currencies give regional stocks an advantage, and as long as these currency gains remain moderate, companies can absorb the impact without major disruptions, allowing equity markets to continue performing well.

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Earlier this year, Asian financial markets were rattled by U.S. tariff threats announced by President Donald Trump in early April, as many Asian economies rely heavily on trade with the United States. However, the region’s markets have since staged an impressive comeback, aided largely by a weakening U.S. dollar.

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Investors are now betting that the tariffs could hurt American economic growth and reduce international demand for U.S. assets, which has led to a drop in the dollar and boosted demand for Asian currencies and equities.

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The Taiwan dollar has been the leader of the regional currency rally, appreciating over 9% since April 2. Meanwhile, the South Korean won, Singapore dollar, and Malaysian ringgit have each gained more than 3%. For dollar-based investors, these currency gains enhance total returns on regional equities, making them an even more attractive investment destination.

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“We see further room for Asian currencies to appreciate in the near term,” said Phoenix Kalen, head of emerging markets research at Societe Generale in London. She attributes this momentum to a continued shift away from U.S. dollar assets, the possibility of positive developments in trade negotiations between the U.S. and Asian economies, and market speculation that stronger Asian currencies could improve the negotiating position of these countries in ongoing tariff talks with the Trump administration.

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Bloomberg data show that global funds have poured a net $9.64 billion into shares across emerging Asia (excluding China) over the past three weeks — the longest run of positive inflows since March 2024.

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On the corporate front, earnings forecasts for emerging-market companies suggest they may be better positioned than their U.S. counterparts to weather the effects of Trump’s higher tariffs. According to calculations by HSBC Holdings Plc, current trade levies may reduce emerging-market earnings by about 7%, compared to an estimated 10% to 15% hit for U.S. companies.

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Despite the current optimism, risks remain. The much-anticipated trade talks between the U.S. and China, scheduled to begin Saturday in Switzerland, carry the potential to escalate tensions if they do not go smoothly. On Friday, President Trump floated the idea of an 80% tariff on China ahead of the negotiations — a reduction from the current 145% level but still a substantial figure that could increase the risk of a global economic slowdown and weaken the appeal of Asian equities.

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“Emerging markets generally don’t perform well during recessions,” warned JPMorgan strategists, including Rajiv Batra in Singapore, in a research note this week. They advised investors not to chase the current emerging-market rally until there is greater clarity on how severe and widespread the potential macroeconomic slowdown might be.

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However, some strategists remain confident that Asian shares continue to offer compelling opportunities — especially if global trade tensions begin to ease. Timothy Graf, head of EMEA macro strategy at State Street Markets in London, expressed optimism about the region’s prospects, pointing out that Asia has been underrepresented in global investor portfolios for a long time and remains undervalued.

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“There’s a lot of upside potential if concerns about global and regional growth start to recede,” Graf said. “The region is ripe with opportunity.”

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Overall, while risks tied to trade policy remain, many global investors are viewing Asia as a bright spot — buoyed by currency strength, robust earnings, and the possibility of improving trade conditions. As the situation unfolds, selectivity and a close watch on global developments will be key for investors looking to capitalize on the region’s renewed momentum.

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