KOSPI leads declines as Asian stocks trade mixed amid mounting AI concerns

Mixed trading marks Monday’s session across Asian stock markets.
The KOSPI and Nikkei came under pressure as underwhelming earnings from leading US technology companies deepened concerns about AI’s future.
Further rate increases remained on the cards as the BoJ left interest rates unchanged at its October meeting on Friday.

Heavy losses in leading South Korean and Japanese technology shares weigh on Asian equities amid largely mixed trading on Friday. Concerns surrounding Artificial Intelligence (AI)-related investments are putting pressure on regional markets.

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With its benchmark KOSPI sliding 5.20% to 5,630, South Korea leads the day’s regional declines. At the time of publication, Samsung shares were 5.70% lower, while SK Hynix had dropped 1.60%. Earlier this week, SK Hynix reported record quarterly sales of 104.6 trillion won.

A 2.55% fall took Japan’s benchmark Nikkei 225 to 63,020. Meanwhile, the Bank of Japan (BoJ) board opted to retain the short-term interest rate at 1.25%, in line with market expectations, at the end of its two-day monetary policy review on Friday.

For the first time since introducing its 2% target in 2013, the BoJ assessed the country’s underlying inflation as “generally consistent” with that target.

Concerns about elevated borrowing costs, substantial AI expenditure and some earnings that missed expectations weighed on investors in Taiwan, where the Taiex declined 2.42% to 45,255.

China’s main stock market index, the SHANGHAI, slipped 0.30% to 3,640, while the Shenzhen Stock Index lost 0.60% to 11,075. In contrast, the Hong Kong Stock Exchange advanced 1.70% to 23.345.

Asian equities: key questions answered

Which key indices track Asia’s stock markets?

Several major stock market indices are based in Asia, a region that accounts for around 70% of global economic growth. Prominent benchmarks in its developed economies include South Korea’s Kospi and Japan’s Nikkei, which covers 225 companies listed on the Tokyo stock exchange. China’s three important indices are the Shanghai Composite, the Shenzhen Composite and Hong Kong’s Hang Seng. India’s position as a large emerging economy is also drawing investor interest towards its equities, with increasing investment in companies represented in the Sensex and Nifty indices.

Which sectors shape Asian equity markets?

The sectors that warrant attention vary across Asia’s major economies. Indices in Japan and South Korea, and increasingly in China, are dominated by technology companies. Financial services play a leading role in markets such as Hong Kong and Singapore, both regarded as key centres for the sector. Manufacturing also has a sizeable presence in China and Japan, particularly in automobiles and electronics. Meanwhile, expanding middle-class populations in countries such as India and China are raising the profile of retail and e-commerce businesses.

What determines the performance of Asian equities?

Although Asian stock indices respond to a range of influences, their main driver is the combined performance of constituent companies, as disclosed in quarterly and annual earnings reports. Each country’s economic fundamentals, central bank decisions and government fiscal policies also matter. Wider influences include political stability, technological advances and the rule of law. US equity indices are another important reference point, since Asian markets frequently take their cue from Wall Street’s overnight performance. Broader market risk sentiment also has a bearing on equities, which are viewed as riskier investments than alternatives such as fixed-income securities.

Which risks should investors consider in Asian stock markets?

Beyond the risks inherent in equity investing, Asian stocks carry regional risks that investors need to consider. Political systems across Asia range from full democracies to dictatorships, creating potentially substantial differences in political stability, transparency, the rule of law and corporate governance requirements. Natural disasters can trigger stock market volatility, as can geopolitical developments such as trade disputes and territorial conflicts. Exchange-rate movements can also affect Asian equity market valuations. Export-oriented economies are especially sensitive: a stronger currency generally hurts them, while a weaker currency tends to help by making their products cheaper overseas.