ASEAN misses AI hardware windfall as energy shocks weigh on FX
Standard Chartered warns Southeast Asia is failing to capture AI supply chain profits just as Middle Eastern energy disruptions threaten to weaken the region's most vulnerable currencies.
Standard Chartered has warned that Southeast Asia is failing to capture the lucrative hardware windfall from the artificial intelligence boom, even as Middle Eastern supply shocks threaten to drag down regional growth and currencies. The bank’s economists highlighted a stark divide between North Asia, which is cementing its dominance in AI components, and ASEAN economies stuck lower down the manufacturing chain.
The gap is most visible in semiconductor manufacturing. While Taiwan Semiconductor Manufacturing Company (TSMC) posted a 77% jump in quarterly profit to 707 billion New Taiwan dollars ($22 billion) this week, Southeast Asia accounts for just 6% of global intermediate manufacturing. Edward Lee, Standard Chartered’s chief ASEAN economist, noted that despite heavy foreign direct investment, the region has not really moved up the value chain compared to China's 15% share.
Singapore, Malaysia, and Vietnam are expected to see some spillover demand from electronics manufacturing and AI server assembly. However, Lee cautioned that significant investment in research and development is required to avoid irrelevance, pointing to Singapore’s $776 million commitment to AI research as a starting point. "R&D is costly," Lee admitted.
The AI transition presents a direct threat to the Philippines, where the business process outsourcing sector generates 8% of GDP. On July 14, the industry association downgraded its 2028 best-case forecasts to $50.5 billion in revenue and 2.14 million jobs, down from $59 billion and 2.5 million respectively. "Every country wants to have the next Silicon Valley... but getting there isn’t just a matter of snapping one’s fingers," Lee said.
Energy shocks pressure regional FX
Compounding these structural challenges, Standard Chartered on Wednesday lowered its 2026 global growth forecast from 3.4% to 3.0% due to conflict-induced downgrades in the Middle East. Eric Robertsen, the bank’s global head of research, warned that a blocked Strait of Hormuz continues to disrupt oil, natural gas, and fertilizer supply chains, causing economic scarring that will stretch into the second half of the year.
The energy crisis is set to weigh heavily on certain Asian currencies. Divya Devesh, the bank's co-head of FX research for ASEAN and South Asia, flagged net commodity importers like India, the Philippines, and Thailand as likely underperformers. A stronger US dollar will exacerbate these currency pressures as businesses navigate a newly politicized global trade environment.
The convergence of these threats underscores a permanent shift in global markets. "Geopolitical risk is now very real," Lee concluded. "People are more concerned with how you produce, and attach a higher premium to geopolitics."
