• A turnaround in the global manufacturing cycle represents a positive development for Asia’s export-focused economies and markets.

• And there are promising signs that this recovery is gaining ground, ranging from a broader pickup in global PMIs to leaner inventories and rising orders in areas that more directly benefit Asian exporters.

The global manufacturing cycle shows signs of bottoming out, a positive development for Asia’s export dependent economies. In recent months, global manufacturing PMIs have been driven mostly by gains in the U.S., across sub-indices for output, new orders, and delivery times. Growth drivers are also rotating towards non-U.S. economies, and the rally in risk assets has broadened out. There have been encouraging signs that manufacturers in Asia are drawing down on inventory levels amid a rise in new orders.

Higher tech capex spending is driving Asia’s semiconductor export recovery. Over the last few months:

• U.S. new orders for computers and electronics have been picking up, especially in non- defense communications.

• Strong AI chip demand has led to greater U.S. investment in Wafer Fab Equipment (“WFE”).

• U.S. cloud service providers increased datacenter capex, with the bulk accounted for by server investments with the remaining related to other infrastructure (e.g., network, storage).

• Japan’s nominal Q4 2023 capex was up by 16.4% y/y, led by a 53% y/y rise in software outlays.

We believe developed market (“DM”) final demand is now growing in the right places that will directly benefit Asia – in outward facing tech capex instead of inward facing services spending. In 2023, above-trend U.S. GDP growth that was led by strong services demand amid persistent weakness in the manufacturing sector did little to lift Asian exports. The U.S. service sector is largely inward looking and has limited direct external impact on other countries. Final demand drivers that ultimately matter for Asian exports lie not so much in DM GDP growth per se, but in specific pockets of tech capex spending.

A rolling recovery

The North Asian economies have been major beneficiaries – thanks to South Korea’s niche in high bandwidth memory (“HBM”) from on-device AI demand and Taiwan’s high-end chip production and packaging capacity.

Incoming data continues to show that Asia’s tech exports continue to recover:

• Korea’s semiconductor exports picked up significantly since the beginning of the year. The latest 10-day export data for March show semiconductor exports growing near 55% over year ago levels.

• Taiwan’s January-February export orders were some 20% higher than the December level, mostly driven by tech.

• China’s tech exports are recovering too but are lagging Korea and Taiwan. China’s January-February merchandise exports came in significantly above expectations, growing 7.1% y/y. There are similar signs of a cyclical upturn in tech demand, as earlier observed in North Asia. China’s exports of integrated circuits rose 24.3% y/y, while PC export growth picked up to 3.9% y/y.

However, the timing and pace of Asia’s tech recovery will be uneven. ASEAN exports began to bottom out, albeit at a slower pace. A key reason why ASEAN tech exports are lagging has to do with the distribution of upstream versus downstream processes. North Asian chip exports are dominated by domestic companies with cutting edge manufacturing operations in higher end upstream processes. In contrast, ASEAN’s largely downstream contribution in the semiconductor value chain (servers, PC’s) means a slightly delayed recovery. Notwithstanding, ASEAN’s export upturn is expected to catch up later in the year as domestic production capacity becomes more fully utilized as the tech cycle matures, and as spillover demand is channeled from North Asia.

A tech-based rally

The manufacturing export cycle has been key in determining broad swings in Asian equities. Consistent with a tech export recovery, net foreign equity inflows into Asia over January-February 2024 were at the highest levels compared to the last four years, driven by tech inflows into Korea and Taiwan. In January-February 2024, emerging markets (“EM”) Asia (ex-China) witnessed cumulative inflows into debt and equity markets which were the highest as compared to the past four years.

Recent stock market performance underscores Asia’s leverage to the improving export cycle, which is historically far higher relative to other regions such as Latin America (where commodity prices matter more). In addition to the tailwind from the signs of a pickup in exports of electronics, AI-related demand – a powerful theme propelling markets – appears to be broadening out and driving inflows and boosting performance in Korea and Taiwan. Indeed, many of the semiconductor and AI bellwethers in these two countries – such as Taiwan Semiconductor Manufacturing Company and SK Hynix – are trading at or near record highs. Since the late-October lows in EM stocks, an equal-weighted index of Korea and Taiwan stocks returned nearly double the EM benchmark, with the outperformance continuing during 2024 (see Figure 1).

Asia FX has mostly lagged the current export upturn, with currencies still facing headwinds from a resilient USD that offers better carry. In addition, North Asian currencies face large institutional outflows in the form of purchases of foreign assets – life insurance companies in Taiwan and the National Pension Service in Korea.

Downside risks

Downside risks could disrupt Asia’s incipient export upturn. Tech restrictions will continue to prevent U.S. semiconductor equipment manufacturers from exporting their most advanced equipment to China. Risks of trade protectionism continue to loom large in the form of additional EU tariffs and U.S. national security concerns on China-made electric vehicles (“EVs”).

Asian trade has been resilient to risks of trade disruption thus far. Companies still need to source parts from Chinese firms that have established deep linkages in the supply chain - China now accounts for 30% of global manufacturing value added. Chinese firms have ramped up foreign direct investments to ASEAN and beyond, growing manufacturing capacity and market share and deepening trade linkages abroad.

Reflecting these developments, China’s recent export upturn has been concentrated in light consumer goods and electronics products – much like the rest of Asia. In terms of size, these two sectors are much larger than China’s EV and battery exports, which have been flat over the past quarter.

In the months ahead, how these trends unfold - especially if China’s exports get lifted by the same rising tide - will provide a litmus test on whether trade is fragmenting. If the global manufacturing upcycle translates into a trade rebound, then the cause of Asia’s export malaise in 2023 was an absence of growth beta that returns in 2024 as final demand picks up. But if future countervailing moves (tariffs, tech restrictions) intensify and act to stymie export growth, then Asia’s export driven growth model will be at threat. These outcomes will have meaningfully different implications for Asia and EM assets.


Vincent Low


Vincent has over 30 years of experience in covering global macroeconomics and markets. He is responsible for formulating investment ideas with PMs, strategists, and equity analysts and developing macro investment themes and processes for TRG’s public markets business. Prior to rejoining TRG, where he was previously CEO of its Singapore office and an Executive Committee member, Vincent held the role of Advisor to the Economics Policy Group at the Monetary Authority of Singapore. He also held roles as the Head of Currency and Fixed Income Strategy at Merrill Lynch, and Senior Economist for Southeast Asia at J.P. Morgan and Standard Chartered Bank. Vincent started his career at the Monetary Authority of Singapore in 1987 and received a Bachelor of Social Sciences in Economics from the National University of Singapore.

Luis Arcentales


Luis has over 20 years of experience in covering global macroeconomics and markets. He is responsible for formulating market strategy at TRG. Prior to joining TRG, he had a short stint as an independent macro researcher following a nearly two-decade career at Morgan Stanley in New York. In his role as Senior Economist, his primary focus was developing the macroeconomic and political outlooks for countries in Latin America, in addition to publishing on topics ranging from the business cycle to trade dynamics for the region. Luis started his career as an equity strategist at McGlinn Capital, a value-oriented asset manager in Pennsylvania. He holds an MS in Economics and a BA in Industrial Engineering from Lehigh University; he sits on the board of Lehigh’s Martindale Center for the Study of Private Enterprise and is a CFA charter holder.

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