The overnight sharp correction in AI/ tech related stocks in the US markets is likely to cause ripple effects in the region on Friday, especially in North Asian markets. Regional equity plays that have been relatively less exposed to the AI-play this year, however, appear to be benefiting in the initial phase of the re-allocation. Indian equity markets have gained steam this week, supported by a strong pick up in foreign interests – net inflows worth ~$4bn in the past ten sessions as a stable rupee resulted in index gains in dollar terms. Lower oil has been the most notable tailwind. The durability of this turnaround remains contingent on how severe risk-off sentiment becomes across the region.
Onshore markets were little moved by the upside surprise in Indonesia’s growth report. 3Q26 GDP rose 5.5% yoy (DBSf: 5.2%) from 5.3% month before. With growth averaging 5.5% over 1Q-3Q, we revised our forecast to 5.4% (vs 5.3% earlier). Upside surprise in growth stemmed from demand for services, consumption benefiting from stimulus measures, firm government expenditure, and higher contribution by investments (including stock build-up). The trend indicates that private sector performance has remained resilient despite tighter monetary conditions and elevated financial market volatility. Backed by resilient growth, monetary policy can remain focused on maintaining rupiah stability. While appetite for equities is tepid, foreign investors have stayed net buyers of IDR bonds on a YTD basis, despite their ownership falling below 13% of outstanding issuance. As expected, USD/IDR moved closer to 18000-18100 range in second half of the week.
Over in Philippines, the economy is experiencing a stagflationary impulse this year (see chartbook). Oct inflation quickened to 7.8% yoy from 7.2%, fastest rise in nearly four years and higher end of the monthly indicative range. This was also above the full-year target of 3.0 percent (± 1 percentage point). Core inflation also rose to 5.4% yoy from 4.8% month before. The uptick was driven mainly by higher food costs, increase in domestic fuel prices, transport fares and wage price pressures. Impact of inflation has been asymmetrical as households with incomes in the lowest 30% of the population increased by 9.5% in Oct vs 1Q’s 2.8%. BSP’s commentary has been cautious, expecting inflation to stay elevated over the next few months on the back of the West Asia crisis and ongoing El Niño conditions. Surge in inflation has pushed the real rates to red this year, despite the central bank’s move to frontload rate hikes. We expect 50bp more increase by 1Q27. Peso strengthened nearly 1.0% on Thu on lower oil and softer dollar, though the benchmark 10Y yield remains elevated at near 8.0%, up ~200bp this year and at highest levels since 2018. Inflation and growth risks will need to be abated before bond interests return. 
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