The end of the question says "in the world." The question should be reformatted as "Of the countries in Asia, which has the most islands?" or "What country has the most islands in Asia?" The way the question is worded says that the country with the most islands in the world is located in Asia, which is incorrect, rather than asking what country has the most islands in Asia or what Asian country has the most islands.
"In the world" makes Asian describe the answer to the question, not restrict the answers to only countries in Asia