Geopolitical Tensions Could Spur Capital Flight from Asia-Pacific Emerging Markets, Warns S&P Global Ratings
S&P Global Ratings has issued a warning that lenders in the Asia-Pacific region might withdraw their investments from emerging markets due to increasing geopolitical tensions.
In its June 2025 report, “Credit Conditions Asia-Pacific Q3 2025: An Unsettling Environment,” the ratings agency cautioned, “Lenders could turn risk-off and seek safe havens, causing capital outflows from emerging markets— compounding volatility in capital markets and currencies. We see geopolitical risk as high and worsening for Asia-Pacific and globally.”
Beyond geopolitical instability, uncertainty and outcomes related to tariff negotiations pose another significant threat. Eunice Tan, head of Asia-Pacific credit ratings research at S&P Global Ratings, explained, “Higher export costs will eat into margins, and weaker sentiment will limit spending by businesses and households. This will drag on growth prospects.”
The automotive sector, including automakers and parts suppliers, is feeling the most pressure from these tariffs. Tariff discrepancies within the region could incentivize Chinese manufacturers to relocate production to areas with lower tariff rates. This shift could intensify price deflation and displace local producers in other parts of the region, negatively impacting economic growth and employment.
Meanwhile, Chinese manufacturers are grappling with reduced demand due to dampened trade and investment, leading to lower revenues, squeezed margins, and price suppression. S&P also noted that small to mid-sized enterprises (SMEs) will face a tougher impact, and the recovery in China’s property sector remains weak.
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