AI sentiment turns cautious, South Korean stocks close down 0.5%, U.S. dollar strengthens, Japanese long-term bonds fall.

The rebound momentum of tech stocks in the Asia-Pacific region has stalled, as investors' doubts about whether the AI rally can continue intensify once again.

On Monday, the Nikkei 225 index closed largely flat at 69,737.69 points. Japan's Topix index closed up 0.9% at 4,101.96 points. South Korea's Kospi index closed down 0.5% at 8,051.33 points. Meanwhile, Japan's 10-year government bond yield rose to 2.815%, the highest since 1996; the 20-year yield rose to 3.785%, also the highest since 1996; and the 30-year yield rose 3 basis points to 4.055%.

U.S. stock futures pared gains, with S&P 500 futures currently up about 0.1%, significantly lower than the level before the U.S. holiday closure on Friday. European stock futures also pointed to a lower open, after European stocks just hit a record closing high on Friday. The dollar strengthened, with the Bloomberg Dollar Index rising against all G10 currencies.

Fabien Yip, market analyst at IG International, said: "The rotation from high-valuation tech stocks into cyclical and defensive sectors continues, and is gaining recognition from investors in the U.S. and Asia. This sector rotation is a healthy sign of improving market breadth after a narrow rally from April to June."

• The Nikkei 225 closed largely flat at 69,737.69 points. Japan's Topix index closed up 0.9% at 4,101.96 points. South Korea's Kospi index closed down 0.5% at 8,051.33 points.
• S&P 500 futures are currently up about 0.1% to 0.2%, while European stock futures also point to a lower open, after European stocks hit a record closing high on Friday.
• The U.S. dollar continues to strengthen, with the yen trading around 161.54.
• The U.S. 10-year Treasury yield fell two basis points to 4.46%.
• Japan's 10-year government bond yield rose to 2.815%, the highest since 1996; the 20-year yield rose to 3.785%, also the highest since 1996; and the 30-year yield rose 3 basis points to 4.055%.
• Gold prices were largely flat, after rising for three consecutive trading days, currently trading around $4,158 per ounce.
• WTI crude oil fell 0.4% to $68.44 per barrel.
• Bitcoin rose 0.7% to $63,148.

Tech stock rebound stalls, capital rotation continues

The repair rally in Asia-Pacific tech and semiconductor sectors clearly lost steam on Monday. South Korea's Kospi index fell 1.4%, with chip giants Samsung Electronics and SK Hynix both declining; SK Hynix's decline once approached 4%. SK Hynix plans to launch a $29 billion U.S. stock listing plan this week, a move believed to help the company expand its capital advantage in the global competition for AI memory chips. However, profit-taking pressure before the listing clearly weighed on the stock's performance.

The fundamentals of the semiconductor industry are not entirely bearish. Hon Hai Precision Industry, a server assembly partner of Nvidia, reported quarterly sales that significantly exceeded market expectations, with a year-on-year increase of about 40%, and stated that AI demand continues to expand. Samsung Electronics is also reportedly planning to raise the average selling price of DRAM in the third quarter by about 20% quarter-over-quarter and has verbally informed some customers.

Market sentiment turns cautious, awaiting earnings season validation

The market's pace entering the second half of the year has clearly turned cautious. Kazuhiro Sasaki, research director at Phillip Securities Japan, noted that recent market volatility has intensified, especially in the tech sector. Fund managers tend to continue reducing positions in AI stocks that have significantly outperformed the broader market, with capital gradually flowing into lagging sectors and value stocks. He believes that industries such as automobiles, machinery, and healthcare are likely to benefit from this rotation trend.

Before the earnings reports of major chip manufacturers, investors' cautious stance on tech stocks is expected to persist. Kazuhiro Sasaki also pointed out that if earnings results exceed expectations, given that some individual stocks have already undergone significant adjustments and valuations have returned to relatively reasonable levels, there is potential for a significant rebound in the market.

From a broader perspective, the market's focus is currently on two main themes: first, the transmission effect of the energy shock caused by the Iran war on inflation and growth prospects; and second, whether tech companies can prove in this earnings season that their AI capital expenditures have translated into substantial profit growth. Brent crude fell 0.6% on Monday to around $71.70 per barrel, partly easing market concerns about inflation and driving U.S. bonds higher.

Currency and commodity markets: Yen under pressure, gold stable

In the forex market, the U.S. dollar continues to strengthen. Goldman Sachs has raised its one-year USD/JPY forecast from 155 to 165 and expressed a preference for carry trades. The yen traded around 161.54 in early Asian trading. The ongoing rise in Japanese government bond yields contrasts with the yen's weakening, reflecting the market's complex expectations regarding Japan's monetary policy path.

Gold prices were largely flat, after rising for three consecutive trading days, currently trading around $4,158 per ounce. The market generally expects the Fed will not raise interest rates in the short term, providing some support for gold prices.

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