Asian Policy Momentum Gains Ground in 2026

• The U.S.-Taiwan Economic Prosperity Partnership Dialogue prioritizes supply chain security, critical minerals, and reciprocal tariff cuts to 15% for traditional industries according to reports.
• A $250B investment plan in semiconductors, AI, and energy is being driven by government credit guarantees to support integration with U.S. technology as data shows.
• Investor anxiety over rising AI capital expenditures has led to risk-off sentiment across equities and cryptocurrencies according to analysis.

The U.S.-Taiwan Economic Prosperity Partnership Dialogue (EPPD) has intensified efforts to create China-independent supply chains by focusing on reciprocal tariff reductions and technology integration. This dialogue is part of a broader strategic alignment aimed at supporting U.S. high-technology competitiveness. Under the agreement, Taiwan will invest $250 billion in semiconductors, AI applications, and energy, with government-backed credit guarantees. The collaboration aims to solidify a structured pathway for industrial cooperation, particularly in AI and startup ecosystems, enhancing U.S. access to a reliable and advanced supply chain.

The U.S.-Taiwan reciprocal tariff agreement includes favorable treatment for semiconductors and AI products under the Section 232 of the U.S. Trade Expansion Act. This policy move supports U.S. industrial re-industrialization and innovation, reinforcing the strategic alignment between the two economies. Analysts suggest the partnership may make Taiwan an indispensable partner in the U.S. high-technology competitive strategy.

The momentum trade has grown to influence the underlying market structure, making the market highly sensitive to shifts in demand and sentiment. Reversals in flows often lead to market flips, highlighting how investor behavior and capital flows are increasingly synchronized with momentum strategies. This dynamic has amplified volatility in recent weeks as positions are unwound, particularly in the tech and precious metals sectors.

Why is AI spending driving market volatility?

Investor anxiety over companies' massive AI capital expenditures is intensifying risk-off sentiment across global markets. Hyperscalers like Amazon have announced significant increases in AI-related spending, far exceeding expectations. This has raised concerns about the near-term profitability of AI investments and is contributing to broader uncertainty about long-term growth sustainability. Equity markets in Asia have mirrored this sentiment, with sharp declines following overnight losses on Wall Street.

The unwinding of momentum trades—positions that have performed well over the past few quarters—is also feeding into the current volatility. These trades, including long positions on tech and precious metals and short positions on the U.S. dollar, are now being reversed as investors reassess risk. This shift is being analyzed by analysts as a sign of fragile investor sentiment in the current market climate.

How are crypto markets responding to AI concerns and ETF outflows?

Bitcoin's sharp decline to $64,000 reflects broader investor uncertainty about the sustainability of AI-driven growth and the potential for further capital outflows in the cryptocurrency sector. The selloff has been amplified by weaker U.S. labor data and concerns over heavy AI sector spending. U.S. spot Bitcoin ETFs have seen significant outflows, contributing to the downward pressure on prices.

Analysts suggest that bears are currently in control of the crypto market, with selling pressure intensifying in early 2026. This trend has been exacerbated by the movement of nearly 60,000 BTC to exchanges. However, some observers believe disciplined, staggered buying may present long-term investment opportunities as Bitcoin approaches a defined support zone.

ETF outflows are not an isolated trend—similar declines were observed in December and November, suggesting a broader shift in investor sentiment. The weekly RSI for Bitcoin has dropped to levels historically associated with major market bottoms, offering a potential indicator for long-term investors to consider.

What are the risks in current market dynamics?

The recent Bithumb incident, where a South Korean exchange mistakenly distributed $40 billion in Bitcoin, highlights the vulnerabilities in digital asset infrastructure. Bithumb quickly froze transactions to recover the funds, with 99.7% of the tokens successfully retrieved. The exchange emphasized that the incident was not a hack or security breach and pledged compensation for affected users according to reports.

To prevent future incidents, Bithumb plans to implement AI-based verification systems and strengthen its transaction monitoring processes. This incident underscores the importance of robust safeguards in digital asset ecosystems, especially as market volatility and high-volume trading increase. Investors are advised to remain vigilant about platform security and transparency as the sector continues to evolve.