Compiled by | Peilin

Asian financial markets maintained their bullish sentiment on Monday, fueled by the continued surge in AI-related concepts, which propelled regional stock markets to new heights.

The MSCI Asia Pacific Index surged by as much as 1.1% during the session before trimming some of its gains. However, market enthusiasm for the technology sector remained robust. South Korean stocks, in particular, stood out, soaring by up to 5% to reach a record high, as capital continued to pour into chip manufacturers considered essential to the AI supply chain.

Meanwhile, the Philadelphia Semiconductor Index hit an all-time high last Friday, and the Bloomberg Asia chip manufacturers index also climbed to a record level. This indicates that global capital is doubling down on the long-term growth prospects of the AI industry.

However, behind the tech stock frenzy, escalating tensions in the Middle East continued to exert pressure on global asset prices.

U.S. President Donald Trump rejected Iran's latest peace proposal, raising market concerns that the closure of the Strait of Hormuz could be prolonged. This prompted a sharp increase in international oil prices. Brent crude rose by 3.4% to approach $105 per barrel, while WTI crude gained 3.9% to reach $99.17.

The resurgence in energy prices heightened fears of a global inflation rebound, also impacting the bond market. The U.S. 10-year Treasury yield rose by 3 basis points to 4.39%.

Amid a risk-averse environment, the U.S. dollar strengthened against all G10 currencies, with the euro, yen, and pound all coming under pressure. Despite this, global stocks remained elevated overall, with markets having largely recouped losses incurred earlier due to the conflict.

Investors generally believe that the AI investment wave, U.S. economic resilience, and improving corporate earnings are offsetting the impact of geopolitical risks on markets.

AI Concepts Continue to Heat Up in Asia, with Capital Concentrated in Chips

From a market performance perspective, tech stocks remain the primary driver of gains in Asian stock markets.

As global investors continue to build expectations for the expansion of the AI industry, chip manufacturers and companies related to the AI supply chain have attracted a steady influx of capital. The South Korean market has emerged as the top performer in this rally, with its benchmark index surging by as much as 5% to hit a record high. This reflects a notable increase in international capital allocation towards Asian tech assets.

Meanwhile, the Bloomberg Asia chip manufacturers index also climbed to a record high, following the U.S. Philadelphia Semiconductor Index, which had already hit a new all-time high last Friday. This further bolstered optimism in the global tech sector.

However, not all tech stocks are rising uniformly. Japanese gaming giant Nintendo saw its shares plunge by as much as 10% after the company issued a warning about rising chip prices. This sparked concerns that hardware cost pressures could erode future profit margins. This phenomenon also highlights that while AI is driving industry sentiment higher, supply chain cost issues persist, with some companies still facing profit pressures.

Overall, global investors currently appear more willing to overlook short-term geopolitical risks and focus instead on earnings growth and long-term expansion opportunities brought by AI.

Anna Wu, a cross-asset strategist at Van Eck Associates Corp., said that since markets gradually moved past the worst stage of war panic, corporate earnings have once again become the primary driver of markets. She noted that as long as there is no major escalation in the Middle East, market sensitivity to conflict-related volatility will decline significantly.

This risk appetite has been particularly evident over the past week. Both the S&P 500 and Nasdaq 100 indexes hit record highs, with strong U.S. jobs data and better-than-expected corporate earnings boosting confidence in U.S. economic resilience.

Even as energy prices rose due to the situation in Iran, investors still believe the U.S. economy can withstand the resulting pressure. According to Bloomberg-compiled data, about 82% of S&P 500 companies exceeded first-quarter earnings expectations, further solidifying investor optimism about the corporate earnings cycle.

Melinda Chen, executive director of equity research at AR Capital in Singapore, believes that strong corporate results have effectively eased concerns about overly rapid spending growth and inadequate returns. She pointed out that positive earnings reports and the latest business developments from a broader range of supply chain companies are also reinforcing market perceptions of high momentum in the AI industry.

Oil Prices Break $100, Boosting Inflation and Strengthening the U.S. Dollar and Treasury Yields

Despite the continued strength in tech stocks, the situation in the Middle East remains the largest potential risk source for global markets.

After Trump rejected Iran's latest peace proposal, market concerns grew that the closure of the Strait of Hormuz could be extended further. As the Strait of Hormuz is a critical global oil transport route, any supply disruption risk quickly pushes up international oil prices. Brent crude rose by 3.4% to approach $105 per barrel, while WTI crude climbed to around $99.17.

The rise in oil prices reignited concerns about inflationary pressures. Previously, markets had expected inflation in major global economies to gradually ease, but the rapid climb in energy prices could alter this trend.

As a result, the U.S. Treasury market saw selling, with the 10-year yield rising by 3 basis points to 4.39%. The rise in yields indicates that markets are beginning to reassess the future interest rate path and are concerned that the Federal Reserve may maintain a high-interest-rate environment for longer.

Meanwhile, demand for the U.S. dollar as a safe-haven asset strengthened noticeably. As the world's traditional safe-haven currency, the dollar rose against all G10 currencies. The euro fell by 0.2% to 1.1766 against the dollar, the yen dropped to 156.99, and the offshore yuan remained largely flat near 6.7937. The pound also weakened, not only due to overall dollar strength but also affected by domestic political uncertainty in the U.K.

British Prime Minister Keir Starmer is set to deliver a major speech that day, attempting to ease doubts about his leadership. Markets expect him to propose a series of new plans to revive support for the ruling party, including strengthening ties between the U.K. and the EU a decade after Brexit.

Elias Haddad, global markets strategy chief at Brown Brothers Harriman, said that Starmer is facing increasing pressure to resign, but at the same time, the risk of the Labour government moving further left is declining, which is instead providing some support for the pound and U.K. government bonds.

In commodity markets, gold failed to extend its previous safe-haven rally, with spot gold falling by 0.4% to $4,697.32 per ounce. Some analysts believe that dollar strength and rising bond yields have diminished gold's appeal.

Meanwhile, the cryptocurrency market remained relatively strong, with Bitcoin rising by 1% to $81,533.95 and Ethereum gaining 1.4% to $2,360.52, indicating that overall risk sentiment has not yet deteriorated significantly.

Momentum Strategies Are Extremely Crowded, with Wall Street Warning of a Correction

Another notable phenomenon in global markets currently is the rapid heating up of momentum trading.

Momentum strategies, where investors continuously buy the strongest-performing assets in the near term, have now spread from tech stocks to areas such as junk bonds and cryptocurrencies. Data shows that a stock momentum index approached its highest level since the global financial crisis last Friday, while the chip manufacturers index surged by 11% over five trading days.

This extreme strength has also raised alarm among some Wall Street institutions.

Barclays strategists believe that current market momentum trading has reached extreme levels similar to those that have repeatedly triggered large-scale sell-offs in the past. Meanwhile, Goldman Sachs' trading desk, citing data from major brokerages, pointed out that high-momentum stocks are not only overvalued but also seeing investor positioning reach recent highs. This means that any reversal in market sentiment could quickly amplify volatility.

However, from current capital flows, investors still tend to continue betting on the AI theme.

Mark Cranfield, a strategist at Bloomberg, said that the strong performance of Asian AI stocks has become a global market focus and continues to attract international capital inflows. This capital enthusiasm is enough to offset short-term sentiment fluctuations caused by the delayed U.S.-Iran peace agreement.

Beyond the Middle East situation, several key events this week could influence the direction of global markets. Upcoming U.S. inflation data will directly impact market judgments on the Federal Reserve's subsequent interest rate policy. If inflation continues to rebound driven by energy prices, market expectations for a rate cut timeline may be pushed back again.

From the performance of major Asian markets, as of 10:35 a.m. Tokyo time, Japan's TOPIX rose by 0.2%, China's Shanghai Composite gained 0.4%, while Hong Kong's Hang Seng Index fell by 0.3%, and Australia's S&P/ASX 200 dropped by 0.8%. U.S. S&P 500 futures fell by 0.2%, indicating that investors remain somewhat cautious at current elevated levels.

Overall, global markets are currently forming a complex landscape: on one hand, earnings growth expectations driven by AI continue to push risk assets higher; on the other hand, Middle East tensions, rising oil prices, and recurring inflation concerns constantly remind investors that potential risks remain unresolved. Against this backdrop of earnings optimism and geopolitical risks, market volatility may further increase in the future.

Article Information Source: Asian Stocks Advance on Tech, Oil Climbs on Iran: Markets Wrap, Bloomberg

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