Smart Money Flow: Where is the money going? Wall Street funds are疯狂 selling off tech stocks and fully investing in this crypto sector. Those who understand are already positioned!

A conflict far in the Middle East has caused Seoul and Tokyo stock markets to record the worst declines globally. Market observers point out that this is not a direct geopolitical impact on the Asian economy; rather, it stems from overcrowded AI semiconductor trading and historically high leverage positions, which, under external shocks, led to concentrated liquidations and pressure releases.

On Wednesday, panic selling swept through Korean and Japanese markets. The Korea KOSPI index fell more than 10% for two consecutive days, marking the largest two-day decline since the 2008 financial crisis. Prior to this, global funds were rotating from U.S. software stocks into Asian semiconductor and hard tech sectors, with Korea’s margin financing and new account openings reaching record highs. The Nikkei 225 index in Japan also declined over 3% for two days in a row.

After the conflict erupted, the dollar suddenly strengthened, reducing the appeal of emerging market assets. Markets also worry that sustained oil price shocks will push up inflation, forcing local central banks to raise interest rates, thereby increasing the cost of financing trades. Korea’s financial conditions, which have been the loosest in decades, face the risk of tightening abruptly, with highly leveraged long positions hit hardest. The global diversification theme of “selling U.S. assets,” originally driven by concerns over U.S. markets, has, under the pressure of extremely crowded positions and capital outflows, evolved into indiscriminate selling of Asian assets.

Some analysts believe that the current sell-off is mainly driven by capital flows rather than deteriorating fundamentals. The narratives of a super cycle in memory chips from Samsung Electronics and SK Hynix, and the strong performance of TSMC confirming AI capital expenditure trends, have not shown any substantial reversal. Currently, profit upgrades for Asian companies remain stronger than those in the U.S.

Before the crash, as global investors rotated from software companies into AI infrastructure stocks, hot money flooded into Asia, seeking opportunities in semiconductors and hard tech. The ongoing expansion of AI trading scope is the deep root of this week’s sharp declines in North Asian markets.

Although North Asian economies are highly dependent on oil and gas imports, in terms of direct energy shocks, Europe may face more urgent crises from this conflict. Moreover, unless the Strait of Hormuz is long-term blocked, North Asian economies have significant buffers through strategic reserves. This suggests that the market’s sharp sell-off is less about pricing in economic fundamentals and more about the concentrated liquidation of leverage positions.

Prior to the crisis, the investment narrative in North Asian hard tech was almost entirely positive. Samsung and SK Hynix both indicated that the supply shortage of memory chips could persist until 2027. Meanwhile, TSMC’s performance further confirms that U.S. large-scale tech companies will continue to increase AI capital expenditure.

Hot money quickly concentrated on a few winners. Data shows that in the week before the escalation in Middle East tensions, the $16 billion iShares MSCI Korea ETF saw over $1.2 billion in net inflows, the highest weekly inflow in its 25-year history. Korean retail investors also heavily bought blue-chip stocks, with active accounts and margin balances hitting record highs. At this point, Asian AI infrastructure trading has become highly crowded.

As the conflict intensifies, capital begins to retreat. The strengthening dollar erodes the logic of allocating assets in emerging markets; concerns over oil shocks pushing inflation and forcing rate hikes directly increase the cost of financing trades. Long positions supported by margin financing face forced liquidations, accelerating the downward spiral.

A deeper issue is that this year’s global diversification theme of “selling U.S. assets” has led to capital flowing predominantly into North Asia, far exceeding normal levels. A geopolitical shock thousands of miles away can trigger intense reverse volatility.

This sell-off may be viewed as a painful but healthy deleveraging process. It will clear out momentum traders chasing gains and losses, allowing the market to return to investors who focus on corporate earnings and reasonable valuations. In terms of fundamentals, profit upgrades in Asia remain stronger than in the U.S.

Once leverage is cleared, for funds focused on the long-term trends of the semiconductor super cycle and AI infrastructure, the valuation levels after thorough correction may provide a more solid basis for re-entry. For cryptocurrencies like $BTC and $ETH, seen as global liquidity indicators and part of emerging tech portfolios, macro deleveraging events often create short-term volatility that presents opportunities for long-term investors to reassess positions and costs.

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