The first quarter of 2026 will be remembered as a period that began with historic optimism and ended in crisis. Asian equity markets opened the year at record levels, fueled by Samsung and SK Hynix’s HBM production ramp, TSMC’s record earnings, Japan’s Takaichi-driven fiscal expansion, Singapore’s AI-centered budget, and India’s emergence as the region’s fastest-growing major economy. By quarter-end, the U.S.-Israeli conflict with Iran and the closure of the Strait of Hormuz had reshaped the regional risk landscape, introducing energy supply disruption on a scale that challenges every growth assumption that underpinned the January rally.
The Korean semiconductor sector delivered the quarter’s most significant corporate milestones. Samsung Electronics began commercial HBM4 shipments in February, becoming the first manufacturer to deliver sixth-generation high-bandwidth memory at scale. SK Hynix committed $13 billion to a new advanced packaging facility and announced a $10 billion U.S.-based AI investment vehicle. TSMC reported record fourth-quarter profit and raised its 2026 capital expenditure to $52 billion to $56 billion. DRAM prices rose 50% to 55% quarter-over-quarter. These developments confirmed that AI infrastructure spending remains the dominant demand driver for the global semiconductor industry and that Asian producers are the primary beneficiaries of that cycle.
Japan’s political transformation was the quarter’s most consequential macro event in the region. Takaichi’s LDP won 316 lower house seats on February 8, a postwar record that gave the party a two-thirds supermajority and a free hand on fiscal, defense, and potentially constitutional policy. The Nikkei 225 reached an all-time high above 59,000 in February before pulling back as oil prices surged. The Takaichi-Trump summit on March 19 produced a framework for expanded trade and defense cooperation, but the energy crisis has complicated the fiscal expansion narrative that drove the equity rally.
China’s NPC session and the approval of the 15th Five-Year Plan established the policy framework for 2026 to 2030, with technology self-reliance, AI development, and supply chain resilience as central themes. The growth target of 4.5% to 5% reflects cautious expectations, and the domestic demand rebalancing agenda faces the same structural obstacles that have limited its effectiveness in previous planning cycles. The $1.2 trillion trade surplus recorded in 2025 provided a financial cushion but also generated international friction that could constrain export growth.
Singapore’s Budget 2026, delivered on February 12, positioned AI as the city-state’s primary growth lever, with a National AI Council, expanded tax deductions for AI investment, and a new Champions of AI enterprise program. The budget reinforced Singapore’s role as the region’s most structured environment for technology-driven economic development and deepened its governance leadership through the January launch of the world’s first agentic AI governance framework at Davos.
The Iran conflict, which began on February 28, has overwritten much of the positive narrative that defined January and February. Oil prices above $100, LNG spot prices up more than 140%, record foreign investor withdrawals from Indian equities, and cascading supply chain disruptions across fertilizers, aviation, and manufacturing have created a risk environment that defies the confident growth projections that characterized the start of the year. The IEA’s strategic reserve release has provided a temporary buffer, but the finite nature of those reserves means the clock is ticking on a resolution.
For investors, the first quarter has reaffirmed two enduring realities about Asian markets. The structural growth drivers, particularly AI-driven semiconductor demand, are resilient and well-supported by corporate investment at a scale that few other regions can match. At the same time, geopolitical risk remains the primary source of downside volatility, and the current manifestation of that risk, a military conflict astride the world’s most critical energy chokepoint, is more severe than anything markets have priced in recent decades. Positioning for the second quarter requires holding both of these realities simultaneously: maintaining exposure to the sectors and companies driving Asia’s technological leadership while managing the energy and geopolitical risks that could temporarily overwhelm those fundamentals.
