A crisis lurks as Asians bring money back home

LAST May, the Taiwan dollar led historic rallies in Asia amid speculation that US President Donald Trump would ask exporting nations to lift the value of their currencies as part of trade deals with America. 

The daily moves were so sharp that some investors said they had the feel of the late-1990s Asian financial crisis, when capital flight sank currencies from Thailand to South Korea.

The big difference in 2025, though, was that the traffic was the other way around: waves of one-sided selling sank the greenback. 

And it may get even weaker yet. This year, the threat of a disorderly depreciation of the US dollar remains, even after the Supreme Court diminished Trump’s ability to use tariffs as trade negotiation tools.

The catalyst may be different, but the outcome will likely be the same: North Asia’s dollar earnings are coming home.

South Korea’s exchange rate, for one, should be a lot stronger. Historically, the Kospi and the won were largely in sync, simultaneously selling off during previous crises. But lately, that relationship has broken down; the Kospi’s blistering rally has been met with a won depreciation.

One explanation is capital outflows. Even though the country’s exports are at a record high, retail investors have been wading into the Nasdaq. Last year, they bought US$32 billion in US stocks on a net basis, also a historical peak. 

But will this outflow continue? Koreans, who for many years stayed away from domestic blue-chip stocks because of the Kospi’s chronic underperformance, are starting to purchase home-grown tech companies. If they offload their US holdings to fund local investments, the repatriation might cause a sharp appreciation of the won.

In the last two years, global trade imbalances have been on the rise, led by China, South Korea and Taiwan.

US Big Tech’s artificial intelligence infrastructure build-out underpinned rising demand for chips from Samsung Electronics to SK Hynix and Taiwan Semiconductor Manufacturing Co.

Meanwhile, a weak deflationary economy prompted Chinese exporters to seek better customers abroad. As a result, the region’s current account surplus as a percentage of its economy is ticking up again.

Until recently, the money that North Asia’s exporters earned was recycled into US assets. For instance, as China’s trade surplus ballooned, rising from roughly US$820 billion in 2023 to US$1.2 trillion last year, a vast pool of companies’ overseas sales were parked in Hong Kong, where US dollar deposits grew by about US$320 billion. US dollar-denominated money market accounts earned higher interest. 

But now that the S&P 500 has stopped delivering handsome returns and the greenback is languishing, some treasurers are converting their US dollar holdings, betting on a strengthening of their home currencies instead. China’s exporters, for instance, are already doing this.

Last week, the renminbi notched its longest winning streak against the greenback since 2010. It is a sign that Beijing is warming up to the idea of a stronger renminbi. The government may have realised the glaring imbalance of its own books: a record trade surplus only increases vulnerability to US capital markets and the greenback.

During the Asian financial crisis, a sudden stop in capital inflows exposed how unsustainable some of the current account deficits were. Now, the tables have turned. The US has become the deficit nation.

According to Goldman Sachs, just to stabilise its net international investment position – a measure of a country’s liabilities to the rest of the world – Washington has to halve its current account deficit to 2 per cent of gross domestic product. 

Repatriation, or the “Sell America” narrative, will be a key theme. For currency traders, the question is whether it might result in an avalanche. Buckle your seat belt when that happens. BLOOMBERG