Asia September 2026 Market Commentary
Higher interest rates finally caught up with Asia in September. Investors grudgingly accepted that the discount rate is headed higher. Three things forced the issue. The escalating Iran-US conflict kept crude above US$100 a barrel for much of the month. A hawkish pivot by the Federal Reserve pushed US Treasury yields to levels last seen in 2002, framing an incipient debt crisis in Europe. And Asian central banks, starting with the Bank of Japan, began deliberately lifting policy rates in response to sticky energy and food inflation.
There is no quick fix for higher rates and oil near US$100. We are reassured that markets are being selective. Markets backed by earnings from the semiconductor and AI value-chain held their ground. Markets that import oil and depend on foreign capital did not. The winners were companies with sustained earnings growth, capital discipline and clear policies for returning excess capital to shareholders.
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A Few Thoughts on the Headlines
The Xi-Trump summit bought temporary stability, not resolution. Xi’s first state visit to Washington in eleven years delivered ceremony, not a breakthrough. The Busan truce on reciprocal tariffs was extended by just two months, to January 10, 2027, alongside recommended tariff relief on US$30bn of non-sensitive goods, and a Chinese pledge to buy US coal. There are no tariff rates or start dates, and no mention of US chip export controls. The government ‘readouts,’ the official summaries each side publishes after a meeting, say far more than the pomp and the rhetoric surrounding the visit. The US led with deliverables, including a request that Xi raise refined-fuel exports. China led with Taiwan, which the US text omits entirely. The US remains transactional; China is building permanent architecture. Neither side wants a rupture before the Asia-Pacific Economic Cooperation (APEC) meeting in November and the Group of Twenty (G20) summit in December. For now, headline risk is low.
In critical minerals, China holds the leverage. Washington’s own language gives this away. By flagging “shortages” and asking for Chinese rare earth shipments to return to “appropriate levels,” the US text concedes that China is throttling supply and that Washington has little to bargain with. Rare earth magnets, the small, powerful permanent magnets inside electric motors, wind turbines and guided weapons, are a case in point: China has cut back shipments of them to Japan. With supply tight, and the Pentagon now explicitly funding a critical minerals supply-chain outside Chinese controls, we see a multi-year investment opportunity in the development of non-Chinese reserves and processing capability.
Call us old-fashioned: the bond-equity gap is the risk to watch. With US Treasuries yielding over 5%, a sustained rise in real yields, whether from a hawkish surprise in the data or an escalation in the US-Iran or Russia-Ukraine conflicts, would test long-duration stocks, whose value rests on narrative and profits far in the future. The second-order risk is bigger. Governments face a maturity wall, significant levels of debt that must be refinanced, competing with the staggering amounts of debt funding required as AI infrastructure scales. We are most mindful of the danger that interest rate risk mutates into credit risk, where market concerns shift from the extent of the borrowing need and the rate required, to whether borrowers can re-pay their debt obligations. The signal to watch is credit default swap (CDS) spreads, the price of insurance against a borrower defaulting.
Energy: Own the Bottleneck, Not the Barrel
Seven months into the US-Iran war, the oil shock has turned into a conversion crisis. The world is not short of crude. It is short of the capacity to turn gas into a liquid that can be shipped, and crude into diesel, jet fuel and gasoline.
Crude has a cushion. Demand destruction, stockpile releases and record US output have absorbed the lost Gulf barrels. At over US$100/barrel, crude is about 40% above pre-war levels, much of it a geopolitical risk premium, a price for what might happen rather than for barrels actually missing. US diesel prices, by contrast, have doubled. The premium sits in the refined barrel.
Liquefied natural gas (LNG) has no such cushion, with new capacity taking four-to-five years to come online. A fifth of global supply sits behind the Strait of Hormuz, Iranian strikes have damaged significant Qatari capacity, and there are no strategic LNG reserves to release. Asian spot LNG trades around US$27 per million British thermal units (mmbtu), the standard unit for pricing gas, against under US$3 in the US. In plain terms, Asian buyers pay roughly nine times the US price for the same energy.
Refined products are tighter still. Gulf and Russian diesel exports are down 1.6 million barrels a day. Europe shuttered 370,000 barrels a day of refining capacity in 2025. Moscow has just banned diesel exports. Asian diesel crack spreads, the gap between the price of crude and the fuel refined from it, effectively the refiner’s margin, are about six times their pre-war level of around US$15 a barrel. Meanwhile, US refineries are running at above 90% of capacity, Europe’s jet fuel stocks are at a seven-year low, and Australia imports about 80% of its refined fuel.
That makes Asia the swing supplier, the region with the spare capacity to export to whoever is short. Its refining surplus sits in China, Korea, India and Thailand, while the rest of South and Southeast Asia, which relied on Gulf fuel, now competes with Europe and Australia for the same cargoes. For now, pricing power sits with Asia’s export-capable refiners and Australia’s LNG exporters.
On balance, what would break this picture is diplomacy plus new supply. A credible US-Iran truce would force an unwind in the speculative positioning in crude futures, the bets traders have piled into oil on perceived geopolitical risk being sustained, as opposed to an analysis of supply and demand. It would also weigh on refining margins, though the forward curve, the prices traders lock in today for future delivery, already assumes Asian margins halving by end-2027, and ultimately, on spot LNG prices as new US capacity comes on stream in late 2027.
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Key Takeaways
• The Trump-Xi summit bought time, not a deal. Neither side wants a rupture before APEC and the G20, but China’s grip over the critical minerals supply chain means Beijing holds the leverage.
• The investment opportunity in the energy complex is in conversion, not crude. Gas liquefaction and diesel refining are the bottlenecks, which is why Asian LNG prices and diesel margins have moved far more than oil.
• Watch the bond-equity gap, not the headlines. A sustained rise in real yields would hit long-duration stocks first and could turn interest rate risk into credit risk.
• Asia is discriminating, not fragile. Markets are punishing oil importers that rely on foreign capital and rewarding companies with visible earnings. With profit forecasts still rising, we expect a bumpy ride but markets that trend higher.
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Behind The Commentary
Prem Manjooran, CIO
35 years investing in Asia
Prem Manjooran is Principal at Tantallon Capital Advisors, where he is the Chief Investment Officer of the Tantallon India Fund and the Tantallon Asia Impact Fund. Prem has spent 35 years investing across Asia through a full range of economic and market cycles. That depth of experience shapes his approach: a seasoned macro view on monetary policy, capital flows, and geopolitics as it pertains to Asia, a disciplined thematic investment approach identifying opportunity and risk, and a deeply calibrated micro, company-by-company perspective built over decades of fundamental investment research and analysis.
Over his career, Prem has built a deep network of relationships across corporate Asia, engaging directly with entrepreneurs and management leadership teams on strategy, capital allocation, and governance. That access and depth of engagement underpins his conviction in Asia’s structural growth story: the view that true innovation, industrialization, and financial inclusion are most durable when paired with disciplined capital allocation and accountability to all stakeholders.
Prior to joining Tantallon Capital, Prem spent 22 years at The Capital Group Companies as an equity analyst and specialist investor covering Asia, moving between market-generalist and industry-specialist roles over the course of his tenure there. He grew up in Mumbai and Calcutta and has spent most of his career living and working across the region he covers.
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