Global oil prices have surged amid an escalation of tensions between the United States and Iran. The vulnerability of Middle Eastern shipping routes has once again come into focus, as vessel traffic through the Strait of Hormuz has declined following the resumption of military activity, including the reimposition of a US naval blockade. The growing militarization of strategic waterways, a development that further reflects the gradual erosion of established international norms, is likely to challenge long-standing assumptions about supply chain resilience. This is particularly significant for critical commodities, including crude oil and other energy resources.

Within Asia, structurally elevated energy prices amid the increased focus on energy security and resilience is likely to reinforce a performance divergence between North Asia and South Asia credit markets. Credit markets in China, Hong Kong, and Korea appear relatively well-positioned to withstand an oil price shock given their lower energy intensity, diversified economies, and substantial fiscal capacity to cushion the impact on domestic consumption and growth. By contrast, Indian credit could face headwinds from higher input costs for downstream refiners, and a larger energy import bill may pressure the INR and growth. Indonesian credit may also see strains if fiscal concerns emerge over increased fuel subsidies.

DBS Aggregate Credit Spread or DACS indices show the aggregate credit spread, weighted by market capitalization and modified duration, for Asian corporate USD-denominated straight bonds. The higher is the DACS, the higher is the additional yield that can be earned in credit, and the higher is the perception of credit risks in markets.

Our first visual shows the notional outstanding of bonds from five Asian economies that comprise the Asia ex-Japan (AXJ) DACS index. These five economies are China, Hong Kong, Korea, India and Indonesia.

The second visual shows the notional outstanding split into industry sectors for the aggregate AXJ DACS index, and DACS indices for each of the five economies. Individual economies can be selected via the dropdown.

Our last visual illustrates the DACS index readings over time for AXJ or an individual economy. It is also possible to drill into the constituent sectors of the DACS indices using the second dropdown. Such sectoral DACS indices are shown on an individual economy basis when data is sufficient, and on an aggregated AXJ basis when otherwise.