Emerging Asian equities diverged on Monday, as a 5% slide in South Korean shares underscored a deepening unwind in the AI trade, while an escalating war in the Gulf drove oil prices higher and revived inflation concerns across the region.
Shares in Seoul fell as much as 5.1% as trading resumed after a market holiday on Friday. The benchmark KOSPI gauge has slumped more than 22% for the month so far, confirming a bear market.
Taiwan's tech-heavy index rose as much as 1% before paring gains, while the MSCI EM Asia equities index edged 0.5% lower.
The South Korean and Taiwanese benchmark gauges together account for about 60% of the MSCI equities index.
"Investors now are reassessing the sustainability of AI capex demand in the longer term, and Korea, which produces AI memory chips for data centres, are more sensitive to changes in market sentiment," said Kelvin Lam, senior China economist at Pantheon Macroeconomics, while noting that Taiwan's ecosystem is lesser exposed than South Korea.
Citi analysts cut Korea to "neutral" in their EM country allocation, from "overweight" since July 2025, citing volatile trading conditions even as the market continues to rank strongly in their fundamentals-based models.
Markets took a further hit on Friday after Chinese AI firm Moonshot unveiled Kimi K3, an open-weight model it said nears Anthropic's frontier Fable system, raising the stakes for this week's earnings from Alphabet, Intel and Tesla.
"This inevitably revived intense, DeepSeek-esque worries about a race to the bottom on model compute undercutting staggering investments by hyperscalers," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.
In Southeast Asia, stocks in Jakarta rose as much as 1.2% to their highest point since mid-June, while stocks in Manila clocked similar gains to hit their highest level since March 3.
Among currencies in the region, the Indonesian rupiah weakened to 17,991 against the dollar at open, before strengthening to as much as 17,960 later in the session.
Markets also turn their focus to Bank Indonesia's meeting due later in the week, with the central bank expected to raise rates again to stabilise the rupiah.
Elsewhere, the Thai baht weakened to as much as 33.70 per dollar, while Taiwan's dollar fell to as much as 32.436 per dollar, with both currencies hitting their lowest levels since late April.
The Thai baht has already been weighed down by low carry returns and a weakening current account, analysts at Maybank said, adding that they expect the currency to remain among the region's weaker performers this month given the lack of supportive catalysts. The baht has fallen 1.2% in July so far.
HIGHLIGHTS:
** Japan markets closed for a public holiday
** Yield on Indonesia's 10-year bonds unchanged at 7.267%
** China leaves benchmark lending rates unchanged for 14th consecutive month in July
** Malaysia's June exports rise 45.4% y/y, below forecast - Reuters
