Asia Drifts Lower as Korea Jitters Test AI Rally
Asian equities edged lower on Tuesday, with South Korea’s KOSPI under pressure from renewed volatility in tech heavyweights, even as the yen stabilized after suspected intervention. The muted session underscored growing investor caution about the durability of the AI-driven rally, despite a strong showing on Wall Street overnight.
Goldman Sachs strategist Timothy Moe remained bullish on Korean equities, citing attractive valuations and structural growth in the semiconductor and defense sectors. However, he acknowledged that leveraged ETFs and foreign investor flows have amplified recent swings, making the market more sensitive to macro headlines.
Yen Steadies After Suspected Intervention
The yen held steady against the dollar after traders speculated that Japanese authorities stepped in to support the currency. While no official confirmation was provided, the move helped stabilize regional sentiment and reduced the risk of a sharp unwinding in carry trades.
Market participants are now watching for any follow-through intervention, which could further influence Asian equities and export competitiveness.
Tech Rally Faces Fresh Doubts on AI Trade
Despite a positive close in U.S. tech shares, Asian tech names struggled to gain traction. Concerns about stretched valuations and the sustainability of AI-related spending weighed on sentiment, with investors questioning whether earnings can justify current multiples.
Moe noted that while the AI trade remains intact, volatility is likely to persist as markets reassess the pace of adoption and potential regulatory headwinds.
Goldman’s Moe: Why Korea Still Offers Value
Moe highlighted that Korean equities trade at a discount to regional peers, with a forward price-to-earnings ratio of around 9 times, compared to 14 times for the MSCI Asia ex-Japan index. He pointed to strong earnings momentum in memory chips and defense, underpinned by global supply chain shifts and rising geopolitical tensions.
Foreign investors have been net buyers of Korean stocks this year, though leveraged ETF flows have added to intraday volatility. Moe cautioned that while these flows can exaggerate moves, they do not alter the fundamental outlook.
Geopolitical Risks and Defense Spending
Geopolitical headlines, including President Trump’s warning that talks with Iran are ‘last chance,’ have kept defense and energy security themes in focus. Moe argued that Asia’s defense spending is set to rise, benefiting Korean and Japanese contractors.
He also noted that China’s energy security strategy is shifting toward renewables and domestic production, creating opportunities in clean tech and grid infrastructure.
Earnings Outlook: Asia vs. US
Moe said Asian earnings growth is expected to outpace the U.S. over the next 12 months, with consensus estimates of 12% growth for Asia ex-Japan versus 8% for the S&P 500. He attributed this to a cyclical recovery in tech and improving domestic demand in China and India.
However, he warned that a stronger dollar or a sharper slowdown in global trade could derail the earnings recovery.
Political Upheaval: Modi’s Party Loses Key By-Election
In India, Prime Minister Modi’s party suffered a setback in a key by-election following widespread protests. The loss raises questions about the government’s reform momentum ahead of national elections.
Investors are watching for any policy shifts that could impact foreign investment and economic growth.
China’s Anxiety Over Mythos Before Trump-Xi Meet
Ahead of a potential Trump-Xi meeting, China is reportedly growing anxious about ‘Mythos’—likely referring to a new technology or trade issue—though details remain unclear. The uncertainty is weighing on regional sentiment and trade-sensitive sectors.
AI Risks: Hugging Face CEO Warns of Growing Dangers
In a separate interview, Hugging Face CEO Clem Delangue warned of increasing AI risks, including bias and misuse. He called for stronger governance and safety standards, which could influence future regulation and impact tech valuations.
Looking ahead, investors should monitor the U.S. Federal Reserve’s next policy move and the upcoming earnings season for key tech names. A break below the 200-day moving average on the KOSPI would signal further downside, while a clear uptick in AI capital expenditure could renew the rally.
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