[Why are currencies of high-interest-rate countries being sold off?] The polarization of the Asian economy brought about by the AI boom!

1. The AI and semiconductor boom is dividing the strength of Asian currencies

• Widening currency gap: While the South Korean won (up over 4% since the end of July) and the Taiwan dollar are being bought as they ride the wave of AI and semiconductor demand, currencies like the Philippine peso (down over 2%), which are less likely to benefit, are falling, creating a clear divide.

• Impact of rising crude oil prices: Whether the increase in import costs due to rising crude oil prices (WTI near-month futures briefly hit the $106 per barrel range) can be offset by growth in semiconductor exports is a factor in this disparity.

2. Strong semiconductor-related exports and accelerating direct investment

• Rapid surge in South Korean and Taiwanese trade: South Korea’s August exports reached $98.25 billion (up 68.7% year-on-year), and Taiwan’s August exports reached $82.4 billion (a 41% increase, marking a record high for a single month), driven by semiconductors and memory-related products.

• Capital investment and capital inflows: Foreign direct investment (FDI) notifications in South Korea for the January-June period increased by 9% year-on-year, while Taiwan saw a 21% increase. In South Korea, two major companies (Samsung Electronics and SK Hynix) have announced factory construction investments totaling 800 trillion won, raising expectations for further growth.

3. The plight of countries that struggle to benefit from the AI boom

• India (Indian Rupee): Although there are many IT companies, the mainstay is the SaaS (cloud-based software) sector, making it difficult to capture the rapidly growing demand for AI and semiconductor hardware, resulting in a sluggish recovery against the dollar.

• Philippines (Philippine Peso): The scale of semiconductor integrated circuit exports remains at only about 3% of the global market share, and it has been unable to offset the expansion of the trade deficit caused by high crude oil prices, leading to a record low in the 62 peso per dollar range.

4. The collapse of the conventional wisdom that ‘high interest rates equal a strong currency’ and the quality of rate hikes

• Reversal of interest rate levels and currencies: Despite having higher interest rates than South Korea (3%) and Taiwan (2%), India (policy rate of 5.25%) and the Philippines (5%) are experiencing currency depreciation.

• Differences in the background of rate hikes: Defensive rate hikes in response to inflation are less likely to contribute to currency buying, whereas aggressive growth expectations backed by real demand such as AI demand and economic strength are enhancing currency resilience. The above is a summary from the Nikkei Shimbun.

☆ ‘Three checkpoints I focused on in this article’

1. Why I chose this article

• The core of the news: Due to the combined factors of AI/semiconductor demand and high crude oil prices, the fortunes of Asian currencies (South Korean won up over 4% vs. Philippine peso down over 2%) are rapidly diverging.

• Reason for attention: This is not just news about currency trends, but because it clearly demonstrates a change in market structure where ‘macro technological innovation called AI is bringing about fundamental structural changes in national-level trade structures, capital investment, and even currency strength’.

2. [Point 1] Changes in market structure and impact on performance

• Polarization due to hardware shift: The center of demand in the IT and digital market is shifting from conventional software (such as SaaS) to AI hardware (advanced semiconductors and memory) that handles mega-scale computational processing.

• Spillover to the macroeconomy: Due to this structural transformation, countries and companies with production bases for advanced semiconductors are gaining powerful export drives and profit margins sufficient to fully absorb the macro cost-increasing factor of high crude oil prices.

3. [Point 2] Corporate competitive advantage and barriers to entry (moats)

• Strengthening of moats (strengths) through massive investment: Semiconductor factory construction investments, symbolized by South Korea’s 800 trillion won scale, are forming physical barriers to entry (economic moats) that do not allow for followers.

• Indispensability of the supply chain: The position as a key node in the supply chain, built through self-reliance and the accumulation of advanced processes, continues to attract foreign direct investment (FDI) and secures medium- to long-term competitive advantage.

4. [Point 3] Ripple effects on peripheral industries and related supply chains

• Ripple effects on vast related industries: The semiconductor boom spreads widely not only to manufacturers but also to manufacturing equipment, high-performance materials, inspection equipment, and even energy infrastructure and data center-related facilities that supply power to factories.

• Broadening of investment perspectives: When observing trends in currency appreciation and depreciation, it is important to have a perspective that includes not only advanced semiconductors themselves but also the expansion of demand for the entire supply chain that supports their manufacturing, as well as the power and infrastructure industries.

☆ Summary

Until now, the principle that “currencies of countries with high interest rates are easily bought” has been common in the foreign exchange market. However, in the current Asian market, a structural change that overturns that conventional wisdom is occurring.

The background to this is the AI and semiconductor boom. South Korea and Taiwan, which attract massive semiconductor exports and direct investment, are easily shrugging off cost increases due to high crude oil prices and maintaining currency appreciation. On the other hand, even if they raise interest rates to deal with inflation, the currencies of countries that cannot capture AI demand continue to be sold off.

This phenomenon tells us that, more than central bank monetary policy (interest rates), we have entered a phase where essential earning power, such as “whether one is riding the wave of global industrial structural change,” determines the value of nations and companies.

In the fields of stock investment and business as well, I believe that a perspective that goes beyond simply following interest rates and superficial numbers to identify which industries and regions are bringing real demand from the wave of technological innovation is required more than ever.

[Disclaimer] This article organizes the author’s personal market analysis and insights based on published news information and data, and is not intended to recommend the buying or selling of specific stocks or to solicit investment. Please make final investment decisions at your own responsibility and judgment.