Breaking News! Global funds are fleeing Asia at the fastest rate in four years, with $11 billion escaping in one week. Under the cloud of war, can your $BTC still serve as a safe haven?

Over the past week, global capital has been withdrawing from emerging Asian markets at an unprecedented pace. According to data compiled by Bloomberg, excluding mainland China, developing Asian stock markets saw a net outflow of about $11 billion this week, the largest weekly sell-off since March 2022. Among them, South Korea’s market saw an outflow of approximately $1.6 billion, and India about $1.3 billion.

This wave of selling directly impacted regional stock markets. The MSCI Asia Pacific Index fell over 6% this week, marking its biggest weekly decline in nearly six years, and compared to the S&P 500, it also recorded its worst performance since April. The Korea Kospi index experienced its largest single-day drop on record, with some markets halting trading multiple times due to extreme volatility.

The trigger for all this was the escalation of geopolitical tensions in the Middle East. Market analysts point out that economies like Japan and South Korea heavily rely on oil imports from the Middle East. The escalation of conflicts involving Iran has sparked widespread risk aversion, forcing investors to reassess risks, and this sentiment quickly spread to stock and forex markets.

This round of capital outflows marks a complete reversal of a previously popular trading strategy: “Sell the US, buy Asia.” This strategy had bet on a weakening dollar, moderate inflation, and the AI boom driving demand for Asian chip stocks, shifting funds from high-valuation US stocks to Asia. However, the situation in Iran has undermined two key assumptions of this approach.

Some fund managers say that investors previously bought Asian stocks based on expectations of a weaker dollar and benign inflation, but current developments challenge both assumptions. Markets are reassessing whether the dollar can remain strong longer and whether high oil prices will reignite inflation pressures.

The core reason for the deeper retreat in Asian assets is the market’s re-pricing of their dependence on Middle Eastern energy supplies. Large fuel imports must pass through the crucial Strait of Hormuz, and escalating conflicts have directly increased supply chain risk premiums. Rising oil prices have heightened concerns about inflation resurgence, especially as many central banks have just begun to build confidence in taming inflation.

Economies like Japan, South Korea, India, and Indonesia are among the world’s largest oil importers, while the US has become a net oil exporter. This structural difference reinforces the market view that Asia, as a “net importer region,” is more vulnerable to inflation pressures and monetary policy constraints amid oil shocks.

Safe-haven flows have driven the dollar higher, putting downward pressure on emerging market currencies. Markets are especially focused on currencies of oil-importing countries and their potential impact on domestic inflation. The Korean won hit its largest single-day decline since 2009 this Tuesday, with investors wary of potential passive deleveraging and forced liquidations.

Meanwhile, market volatility has surged significantly. The JPMorgan Emerging Market FX Volatility Index has risen above the levels of the G7 comparable indicators this week, ending a long period of being below the G7, highlighting a rapid shift in risk pricing.

In response to these upheavals, major institutions have quickly adjusted their strategies. Morgan Stanley’s strategists, citing risks related to the Iran conflict, have become more cautious on Asian and emerging market equities, downgrading India and the UAE from overweight to neutral, and upgrading Saudi Arabia from underweight to neutral. They noted in their report that Asia “heavily depends on Middle Eastern crude oil, refined products, and LNG supplies,” and believe the market underestimates supply chain risks.

Citi’s strategists emphasize pace management. They stated in their report that risk exposures have been significantly reduced over the past few days, but if signs of stabilization emerge, they hope to re-establish long positions in emerging markets. Although oil prices show “initial signs of stabilization,” it is still premature to assert that prices will follow the 2022 trajectory again.

Beyond the Middle East situation, investors will also be closely watching the US non-farm payroll data tonight for clues on the Federal Reserve’s future rate path. The re-pricing of dollar strength and global risk appetite will ultimately determine whether this “withdrawal trade” in Asian assets is a temporary fluctuation or a longer-term repositioning. For highly interconnected global liquidity assets like $BTC and $ETH, this geopolitical-driven “dollar tide” shift is a macro backdrop worth observing with caution.

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