Korean Markets Post Record Single-Day Rebound as AI Stock Rout Eases

Seoul Leads Regional Rally

Asian equity markets reversed course sharply Friday, led by South Korea's Kospi index, which surged more than 10% in its strongest single-day performance on record. The rally came after a brutal week that saw the index plunge on fears surrounding artificial intelligence capital expenditure and leveraged retail product blowups.

Tokyo's Nikkei 225 climbed 4.5%, while the MSCI Asia-Pacific index excluding Japan added 4.6%. The rebound followed overnight gains in Microsoft and Amazon shares after both companies reported earnings that showed continued robust demand for AI infrastructure and cloud services.

Despite Friday's recovery, the Kospi remains on track to lose over 25% in July, its worst monthly performance since the 1997 Asian financial crisis. The severity of the selloff prompted South Korean authorities to announce restrictions on leveraged investment products that had amplified losses for retail investors.

Fabien Yip, market analyst at IG, noted that AI demand fundamentals remain intact. "The AI demand story didn't really decelerate, it seems like it's still sustainable," Yip said. "So the selloff that we saw is maybe the market overreacting to some of those concerns."

Yen Volatility Spikes Ahead of BOJ Decision

Currency markets commanded attention as the yen held near 160.55 per dollar Friday, retreating slightly after a sharp 2.4% rally Thursday that market participants attributed to coordinated intervention. The currency had previously touched 40-year lows near 164 per dollar.

In an unusual move, South Korea's foreign exchange authorities also conducted dollar-selling operations Thursday. Japanese media reported that US authorities performed rate checks, a technical step that often precedes intervention, suggesting multilateral coordination.

The timing of the currency action came hours before the Bank of Japan's policy meeting Friday. Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho, described the intervention as a pre-emptive warning against potential yen selling if the BOJ holds rates steady.

Liquidity in dollar-yen trading remained thin Friday as traders grew cautious about further official action. The euro stood near a one-month high at $1.1514, while sterling held at $1.3457.

China's AI Stocks Rebound

Chinese technology shares participated in the regional rally. The CSI AI index climbed more than 7%, while Hong Kong's Hang Seng Tech index added 0.5%. The gains reflected improving sentiment toward AI-exposed equities across the region.

Ji Young Park, senior emerging markets equity portfolio manager at Amundi, suggested the worst of the AI-linked volatility may be over. "Given the sharp correction we've had across the markets that have AI exposure, we believe we are close to the end of this prolonged volatility," Park said.

Futures markets pointed to further gains, with Nasdaq futures up 0.6% and S&P 500 futures adding 0.3%. European equity futures also advanced, with EUROSTOXX 50 contracts climbing 0.5%.

Energy Markets Dip on Middle East Tensions

Oil prices declined despite escalating Middle East tensions. Brent crude fell 1.2% to $88.00 per barrel, while West Texas Intermediate dropped more than 2% to $81.82 a barrel. A drone strike on gas vessels in Egypt's Damietta port raised concerns about potential threats to Suez Canal shipping, a critical route for Saudi crude exports.

Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, noted the muted market reaction. "The striking feature of the market reaction is that energy prices did not panic despite the deterioration in the conflict," Catril said.

Spot gold eased 0.5% to $4,082.88 per ounce. US Treasury yields showed a steepening curve, with long-end rates near 19-year highs while short-end yields softened, reflecting doubts about the Federal Reserve's grip on inflation expectations.

The dramatic swings in Asian markets this week underscore the region's sensitivity to shifts in AI investment narratives and currency policy coordination. Seoul's regulatory response to leveraged retail losses signals heightened official concern about market stability as geopolitical and monetary policy uncertainty persists.