Asia Faces High Risks from Potential AI Boom Collapse

Southeast Asia, along with China, Japan, and South Korea, faces higher risks than most economies if the artificial-intelligence (AI) boom experiences a sudden downturn. The Asean+3 Macroeconomic Research Office highlighted this vulnerability in its 2026 Financial Stability Report, noting that the region is deeply embedded in global AI supply chains and financial markets. A sharp correction in AI-related assets could trigger widespread financial and economic shocks, including capital outflows, reduced exports, and weaker investor confidence.

The report warns that Asia’s reliance on tech-related exports has helped cushion the impact of high energy prices and US tariffs. However, a decline in AI demand could lead to a pullback in capital spending, undermining export revenues, investments, and broader economic growth. The region accounts for two-thirds of global AI-related trade growth, making it particularly susceptible to any downturn.

Regional equity markets, especially in South Korea, are heavily concentrated in AI-related stocks, increasing their exposure to a potential correction. Meanwhile, markets like Japan and Hong Kong are closely tied to US AI and technology firms, meaning shocks could spread even without a domestic trigger. The report also highlights concerns about higher leverage among hyperscalers funding data centre buildouts and the instability caused by opaque private credit markets and circular financing deals.

Central bankers worldwide, including the Bank of England and the Monetary Authority of Singapore, have raised concerns about the sustainability of massive AI investments. Factors such as stiff competition, rising borrowing costs, and growing pushback against data centres and AI security threats are fueling these worries.