Chip Fever Beats Oil Fear: EM Stocks Hit Two-Month High as Kospi Soars Past 3%

Two forces pulled at emerging markets on Monday, and the one betting on artificial intelligence won. 

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Oil was climbing. The Fed looked more hawkish than it did a week ago. And yet developing-nation stocks put in their best showing in over two months, because the world's chipmakers had a very good Friday. 

MSCI's emerging-market equity index rose as much as 1.4% during the session, a level it hasn't touched since June 26. Seoul did much of the work. The Kospi jumped more than 3%, extending Korea's run as the region's favourite way to play the AI trade. 

Why chips carried the day 

The trigger sat in the US. Semiconductor stocks rallied there on Friday after OpenAI announced GPT-6, the next generation of its technology, which the company frames as a major step towards artificial general intelligence. By the time Asian markets opened, that enthusiasm had crossed the Pacific. Technology finished as the best-performing sector on the EM gauge. 

Almost everything else went the other way. Most of the index's other sector groups slipped, weighed down by two developments that would normally dominate a Monday: crude prices rose after the US and Iran traded attacks involving tankers in the Strait of Hormuz, and a strong US jobs report pushed traders to price in a higher chance of a Federal Reserve rate hike in the near term. 

Wee Khoon Chong, senior market strategist for Asia Pacific at BNY in Hong Kong, said tech's strength was enough to outweigh the "drag" from costlier oil. In his view, Friday's US tech surge set the tone for the whole region, with the Kospi, Taiwan's exchange and Japan's Nikkei all riding it higher. 

The won is on a tear 

Korea's currency told the same story. The won climbed to its strongest level in almost two years, supported by the chip rally and steady foreign buying of Kospi shares. Its relative strength index, a widely watched momentum measure, hit its highest reading since 2013, a sign of just how fast the move has been. 

Not every currency shared in it. Oil importers such as Indonesia and the Philippines saw their currencies weaken as crude rose. Even so, MSCI's index of EM currencies edged up 0.1%, its twelfth gain in the last thirteen sessions. 

Where the smart money is looking next 

There's a subplot worth watching. With AI positioning in Korea and Japan now looking crowded, some investors are hunting for a less obvious angle, and they're finding it in China. Desks at Barclays and UBS report growing client appetite in recent weeks for bullish options and swap contracts linked to China's CSI indexes, a way to gain exposure without piling further into names that have already run hard. 

For now, the message from Monday is simple: as long as the AI story keeps delivering headlines like GPT-6, emerging-market investors seem willing to look past a $90-plus oil price and a Fed that hasn't finished tightening.