Taiwan’s Taiex leads Asian stocks higher after AI sell-off

Monday trading sees most Asian equity markets advance.
5.30% daily rise puts Taiwan's benchmark ahead of regional peers.
Equities recover from a technology sell-off sparked by the Democrats’ sweeping US midterm election victory.

Most Asian equity markets are higher on Monday. An uneasy calm follows a turbulent week in which concerns over Artificial Intelligence (AI) drove some of the sharpest declines in years across the region's technology-heavy markets.

Around 5.30% was added to Taiwan's benchmark TAIEX, taking it to 41,800. The rebound follows last week's steepest weekly loss in two decades. After Democrats won at the US midterm elections, concerns about AI profitability and infrastructure demand triggered a sell-off.

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Analysts also flagged a potential source of volatility at industry bellwether Nvidia. The company is conducting an internal investigation into whether its CEO Jensen Huang was targeted by a foreign spying effort.

A 2.90% advance took Japan's benchmark Nikkei 225 to 59,090. Minutes of the BoJ's September meeting, published last week, showed that most policymakers considered further interest rate rises appropriate as underlying inflation neared the central bank's 2% target.

A 0.35% gain brought China's main stock market index, the SHANGHAI, to 3,660. At 24,520, the Hong Kong Stock Exchange was up 0.13%. By contrast, the Shenzhen Stock Index slipped 0.14% to 11,160.

Asian equities: key questions

Asia's principal equity benchmarks

Around 70% of global economic growth comes from Asia. The region is home to several major equity benchmarks. In its developed economies, prominent indices include South Korea's Kospi and Japan's Nikkei, which covers 225 companies listed on the Tokyo stock exchange. China's three key indices are the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. India, a large emerging economy, is also attracting equity investors, with increasing investment in companies included in the Sensex and Nifty indices.

Key sectors across Asian equity markets

Sector exposure varies across Asia's major economies. Technology dominates equity indices in Japan and South Korea and, increasingly, China. Financial services lead markets such as Hong Kong and Singapore, both regarded as important hubs for the industry. Manufacturing has a substantial presence in China and Japan, particularly in vehicle production and electronics. Meanwhile, expanding middle-class populations in countries including China and India are raising the profile of retail and e-commerce businesses.

Main drivers of Asian equity performance

Although numerous forces influence Asian equity indices, the combined results of their constituent companies, disclosed in quarterly and annual earnings reports, are the primary driver. National economic fundamentals, central bank decisions and government fiscal policies also matter. At a broader level, political stability, technological advances and the rule of law can affect stock markets. US equity performance provides another influence: Asian markets frequently follow Wall Street's overnight direction. Overall market risk appetite is relevant too, since equities are viewed as riskier than alternatives such as fixed-income securities.

Risks specific to Asian equity investment

Beyond the inherent risks of equity investment, Asian stocks carry regional risks that investors need to consider. Political systems across Asia range from full democracies to dictatorships. As a result, political stability, transparency, the rule of law and corporate governance requirements can differ substantially. Trade disputes and territorial conflicts are among the geopolitical events that can trigger stock market volatility, alongside natural disasters. Exchange-rate movements can also affect Asian equity valuations, particularly in export-oriented economies. A stronger currency typically hurts these economies, while a weaker currency tends to help by making their products cheaper overseas.