Today’s session in Asia has been defined by an AI-powered upturn. Easing US inflation figures have put a new spin on rate calls and opened the floodgates for chipmakers. The Kospi in South Korea is up over 6%, putting the region’s tech prowess on display, if only for now, before an oil price pop can complicate matters.
AI trade resets Asia’s tech leadership
You see it most plainly in South Korea. SK Hynix was up 10% on the back of a 27% jump in its ADRs, and Samsung Electronics put on more than 6%, making for a stiffer competition from the continent’s semiconductor heavyweights. The Korea Exchange even had to hit the brakes on programme buying for five minutes when Kospi 200 futures made a 5% run.
It is a case of growth calling the shots. When the open came around, the Kospi was 6.3% in the black and the Kosdaq 4% better, with money flowing into the kind of earnings power that comes with AI. The gap between SK Hynix’s ADRs and the home-listed stock has blown out to over 50% in just three days since they were introduced in the US.
Regional breadth improves beyond chips
The rest of the region is not far behind. Japan’s Nikkei 225 and Topix were 0.9% higher; in Australia the S&P/ASX 200 tacked on 0.6%. MSCI’s index for the Asia Pacific was 1.2% up, and you could see the numbers: for every one stock in the red, there were three or more on the rise.
There is a point to that. It is not a story told by a few large caps alone; the AI play is moving out to the suppliers and equipment side of things. It also follows a period of rough trading where some had to think twice about their exposure to high-beta tech.
Rates repricing lifts risk assets, weakens dollar
The US rates complex has done much of the work here. After a strong showing on Tuesday, Treasuries have found their footing and yields have come down, as the market has let go of the idea the Fed would be hiking any time soon. The greenback has given ground to every G-10 currency.
Gold is holding its own close to $4,050, a sign of hedging activity in the face of the equity run-up. Tiffany Wilding of Pacific Investment Management Co. put it plainly: “Softer than expected CPI is a big relief.” In her view, the numbers should put any talk of a July rate hike to rest, even if they don’t put an end to all discussion of further tightening.
Some of that change in mood can be put down to Wall Street. The S&P 500 was up on the back of some good showing from the big banks, and chipmakers gave the Nasdaq 100 a boost. But there were stumbles, too; IBM was down 25% on a weak sales report, which is a case in point for the margin and demand risks that are still out there.
Oil spike complicates inflation relief
Then there is the matter of energy. Oil has been on the upswing for three days running, with Brent up 1.8% to over $86 a barrel after an 11% run-up the last two sessions. It follows President Trump’s threat of more action against Iran and the US putting a hold on shipping through the Strait of Hormuz.
The pressure is being felt most in refined products. Fuel is at record tightness in the US and Europe, and with Russia having trouble moving its crude after Ukrainian drones made inroads on their refineries, there is bound to be some pain at the pump.
Garfield Reynolds of the strategists’ table is warning of a spillover effect. With fuel futures well ahead of crude, he sees a level of complacency among investors about energy shocks going away. That kind of thinking will be a problem for equities, credit and bonds.
What comes next
The Fed is not budging. Chairman Kevin Warsh made his position known in front of lawmakers: “I am not going to show up here and say mission accomplished. What I would say is there is plenty of work to do.” He left no room for doubt that price growth will be tamed.
Here is what to make of the day’s activity:
– Kospi was up 6%+ on AI
– MSCI Asia Pacific 1.2% higher
– SK Hynix 10%; ADRs 27%
– ADR premium in excess of 50% in as many days
– Nikkei 225 and Topix 0.9%
– S&P/ASX 200 in Australia 0.6%
– Gold in the $4,050 range
– Dollar soft vs. G-10
– Kospi 200 futures 5% before a lull in buying
It is a straightforward story for the market: the case for AI earnings is strong again, and anxiety over rates has let up. Asia’s tech sector is moving. But with oil and refined products in the mix, there is a chance of some rekindled inflation to see if this risk-on attitude holds up.
