Asian equities moved higher on Friday, with a sharp recovery in South Korea standing out after a turbulent week for regional markets. Technology names benefited from overnight strength on Wall Street, where strong quarterly results from Microsoft and Amazon underpinned investor faith in ongoing AI investment and helped lift the Nasdaq and broader tech sector.
Policy backdrop
The Bank of Japan left its short-term policy rate unchanged at 1.0% following a vote of 8-1. Board member Hajime Takata cast the lone dissent, calling for a rise to 1.25% and citing growing upside risks to inflation stemming from overseas demand shocks and shifting global financial conditions. The central bank noted that risks to inflation appear skewed to the upside and said policymakers must monitor closely the effects of developments in the Middle East, foreign exchange moves and global demand for AI on Japan's economy and price trends.
The BOJ's decision came after data showed inflation in Japan's capital accelerated by more than expected. Market participants were waiting for remarks from Governor Kazuo Ueda, after Japanese authorities intervened in currency markets this week to blunt a slide in the yen to four-decade lows.
Market moves and drivers
South Korea's KOSPI staged a strong rebound, rising more than 14% on the day after coming off its steepest weekly selloff in decades. Heavyweights in the chip sector, Samsung Electronics and SK Hynix, led the bounce as upbeat US corporate earnings from Microsoft and Amazon renewed confidence that AI-related spending will persist. The rally reduced selling pressure and helped steady investor sentiment after a week dominated by concerns around AI valuations and intensifying competition from Chinese chipmakers.
Despite Friday's sizable gains, the KOSPI remained on pace for a roughly 25% drop for the month, as profit-taking and worries tied to AI investment valuations continued to weigh on the index.
In mainland China, the Shanghai Composite rose 0.6%, while the blue-chip Shanghai-Shenzhen CSI 300 gained 1%. Hong Kong's Hang Seng slipped 0.2%, though its Hang Seng TECH sub-index climbed 1.5%.
Elsewhere across the region, Australia's S&P/ASX 200 ticked up 0.4% and Singapore's FTSE Straits Times fell 0.8%. Futures linked to India's Nifty 50 inched higher by 0.1%.
Economic signals
Headline economic data offered mixed signals on Friday. China's manufacturing PMI unexpectedly moved back into contraction in July, while the non-manufacturing PMI also weakened, underscoring persistent headwinds for the world's second-largest economy. These readings left investors watching for any additional policy support from Beijing.
Geopolitical watch
Investors also kept a close eye on geopolitical developments after continued hostilities between the United States and Iran raised concerns about potential disruptions to energy supplies, a factor that could affect markets sensitive to commodity prices and inflation dynamics.
Key takeaways
- US tech earnings from Microsoft and Amazon boosted sentiment, supporting Asian technology stocks and the Nasdaq's momentum.
- The BOJ held its short-term rate at 1.0% in an 8-1 vote; one board member favored raising the rate amid upside inflation risks.
- Regional economic data were mixed, with China's manufacturing PMI slipping into contraction while Tokyo inflation accelerated, keeping policy and market watchers alert.
Risks and uncertainties
- Geopolitical tensions between the United States and Iran could disrupt energy supplies and feed through to markets and inflation-sensitive sectors.
- Further weakening in China’s activity, evidenced by the PMI readings, could pressure export-oriented and commodity-linked sectors across the region.
- Market sentiment remains vulnerable to profit-taking and valuation concerns in AI-related technology stocks, particularly after recent sharp moves.