Asia among most vulnerable to AI correction, report shows

Southeast Asia, home to China, Japan, South Korea, and Southeast Asian nations, faces significant risks from potential AI-related disruptions, according to the Asean+3 Macroeconomic Research Office's 2026 Financial Stability Report. This region is at the heart of global AI supply chains and is increasingly intertwined with AI-related financial markets, making it particularly vulnerable.

A disorderly correction in AI could trigger shocks across financial markets and the real economy, causing ripple effects through lower technology exports, portfolio losses, capital outflows, refinancing pressure on leveraged firms, and weakened investor confidence. Tech-related exports have shielded Asia from the effects of high energy prices and US tariffs, but should demand for AI wane, a slowdown in capital spending could undermine export revenues, investments, and overall economic growth.

The region's equity markets, especially in South Korea, are highly concentrated in AI, leaving them susceptible to sharp price corrections. Meanwhile, Japan and Hong Kong have grown closer to US AI and technology firms, meaning shocks could spread even without a domestic trigger. As hyperscalers rely more on borrowing to finance data center expansions, higher leverage could exacerbate the impact of disappointing AI returns.

Opaque private credit markets and circular financing deals may exacerbate instability. Central banks worldwide, including the Bank of England and the Monetary Authority of Singapore, have expressed growing concerns about the sustainability of massive AI investments, given the technology's rapid development, stiff competition, higher borrowing costs, and growing apprehensions about data centers and AI security threats.