SINGAPORE: Asia stocks rallied on Wednesday as renewed AI enthusiasm buoyed sentiment ahead of earnings from industry bellwethers later in the US day, while the New Zealand dollar tumbled after the country's central bank unexpectedly held rates steady.
South Korea's Kospi surged more than 6% and was on track for its largest one-day percentage gain since July 31, after chipmaker SK Hynix reported a more than seven-fold jump in quarterly profit and said it would return about $75 billion to shareholders this year.
The AI rally faces its next test when technology giants Alphabet and Microsoft report earnings after market close, with investors looking for evidence of returns that would justify the hefty cost of the AI build-out.
"The equity market has been pricing it as a growth opportunity. The credit markets have started to price the financing risk," said Nick Ferres, chief investment officer of Vantage Point Asset Management.
"While the capex boom continues - and it does look like the major companies are going to confirm or affirm the capex... the demand side still looks reasonably strong, but there's a question mark over the return on investment. On the financing side, the financing markets have become more challenged for maybe the weaker balance sheet players."
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was up 1.7%, with Japan's Nikkei adding 1.1% and China's CSI300 blue-chip index advancing 0.7%.
Nasdaq futures added 0.35% and S&P 500 futures edged up 0.05%. EUROSTOXX 50 futures and DAX futures were down more than 0.2%.
A series of AI-related funding announcements from Meta , SpaceX and Broadcom this week has breathed new life into the AI trade, with Anthropic's filing for an initial public offering also providing support.
"Not all big tech stocks should be treated equally regarding future potential growth. The period of a rising market lifting all stocks has started to shift," said Chris Brigati, SWBC's chief investment officer.
"Future expectations are more focused upon execution risk and how much future success is already embedded in the current stock price."
CENTRAL BANK SURPRISES
Earnings aside, investors are watching for the Bank of Canada and the Fed'srespective policy decisions later on Wednesday.
Expectations are for the BoC to raise rates and the Fed to keep them on hold, though analysts at JPMorgan said in a client note that they anticipated at least two hawkish dissents for the US central bank.
"Market participants will likely focus on how Chair (Kevin) Warsh couches the decision, and we think deferring on an explanation will be viewed as dovish in nature," they said.
Earlier on Wednesday, the Reserve Bank of New Zealand surprised the markets by holding its benchmark official cash rate at 2.75% in a narrow vote, sending the kiwi down more than 1% to a session-low of $0.5583.
"Markets were too confident about a hike today, but that does not necessarily mean the entire rate outlook is overpriced," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
"Today's decision shows the RBNZ is willing to surprise markets, a reminder that central banks do not take orders from markets."
In other currencies, the Australian dollar steadied at $0.7031, buoyed by data which showed domestic inflation accelerated in the third quarter as fuel prices increased.
Israel's shekel weakened after exit polls showed the country's wartime election appeared deadlocked.
Elsewhere, oil prices rose after an attack on a refinery in Saudi Arabia, the world's biggest crude exporter, renewed concerns around the risks to supply in the Middle East.
Brent crude futures were up 1.4% to $115.47 a barrel, while US crude rose 1.5% to $101.40 per barrel.
Spot gold fell 0.4% to $4,040.32 an ounce. - Reuters
