Investors shrug off Iran worries to return to Asia, ‘backbone of the whole AI value chain’

Asia’s stock markets have rebounded since the outbreak of the Iran war over two months ago, as the AI boom lifts the fortunes of manufacturing economies like China, South Korea, and Japan.

“Asia was outperforming global markets before the Iran conflict started,” Charu Chanana, Saxo Bank’s Singapore-based chief investment strategist, tells Fortune. While there was an initial pullback following the war’s outbreak, “things have started to recover in the last two weeks and Asia is outperforming again”.

One reason is growing demand for AI and its related infrastructure. Asia houses three-quarters of the world’s semiconductor manufacturing, so a global surge in demand for AI processors and memory chips is lifting the fortunes of chip and chip-related companies. JPMorgan analysts, in a 2025 market review, noted that tech-related growth is now spreading globally following a decade of U.S. overperformance.

South Korean firms like SK Hynix and Samsung are cashing in on the high-bandwidth memory (HBM) market, while TSMC dominates in logic chip manufacturing. East Asia holds nearly all of the world’s production capacity for chips smaller than 10nm, which are essential to cutting-edge AI technology and other electronics.

“Asia is the backbone of the whole AI value chain,” Chanana explains. “Nvidia needs components from Asia to make its chips, and even if the U.S. wanted to set up something to replace inputs from TSMC, it would still take years.”

At the same time, the Middle East conflict is stoking fears of de-dollarization, sending investors in search of alternatives like the Chinese yuan. 

“This whole conflict—even if it ends tomorrow—does add a lot of budget pressure to the U.S.,” Chanana notes. “They have to spend to rebuild their defense, and that adds to de-dollarization fears.” (The American Enterprise Institute estimates that the Iran war has already cost the U.S. between $25 and $35 billion, while the Pentagon told Congress that the first six days of the war alone cost them $11.3 billion.)

Asia’s great market divide

Other Asian markets aren’t faring as well. 

Buoyed by the AI trade, East Asian economies have largely erased their losses incurred when the war began. As of April 27, Taiwan’s Taiex is up almost 10% compared to pre-war levels, while South Korea’s KOSPI has risen by 4%. Japan’s Nikkei 225 and China’s CSI 300 have also inched upwards.

But Asia’s emerging economies, largely in South and Southeast Asia, are grappling with fuel shortages caused by the closed Strait of Hormuz. Wealthier Asian economies have both built up large fuel stockpiles (like China has), and have enough money to pay higher prices (like South Korea has). Developing Asia has been left stranded. 

“Energy is still a dependency in Southeast Asia,” Aditya Laroia, CEO of Maybank Securities, says. “If you’re not producing it all domestically, then you’re naturally dependent on a lot of other parts of the world.” 

He adds that weak governance and corruption allegations are also dampening investor confidence in parts of Southeast Asia. The Philippines, for example, saw a huge market sell-off in late 2025 following a major corruption scandal with government-funded flood-control projects.

“Wherever there’s instability in terms of government and policy, it’s detracted from capital flows,” Laroia says.

This has been reflected in weakening market indices in Asia’s emerging economies. Since the war began, India’s NIFTY 50 has fallen about 5%, while the MSCI ASEAN index is down by 7%.

Southeast Asia’s infrastructure opportunity

AI and the Iran war do converge on one area, however: energy security. Data centers require immense amounts of electricity to run, boosting demand even as fuel supplies from the Middle East remain locked in the region. 

This is where Southeast Asian nations like Indonesia, Thailand and Malaysia, are getting the chance to shine. They, alongside other ASEAN nations, are stepping up efforts to build out critical energy and AI systems within the region. “There’s a big infrastructure play in Southeast Asia,” Laroia says. “The investment of capital into energy sources and renewables will continue, and that’s why this part of the world still has a lot of growth left in it.”

On April 23, the British Investment Institute, the U.K.’s development finance institution, announced a $1.48 billion Asian climate investment initiative to finance green energy projects across India and Southeast Asia.

“It’s really infrastructure that creates the biggest opportunity right now, from an investment perspective,” Chanana, of Saxo Bank, says.

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