(Oct 12): South Korean shares dragged emerging Asian stock markets lower on Monday as investors grew wary of hefty AI-related spending and weak returns ahead of the earnings season, while broad US dollar selling lifted the won to a two-year high.

MSCI's broad index of emerging Asia stocks fell 0.8% to its lowest since mid-September. Tech-heavy South Korea and Taiwan markets account for more than half of the benchmark.

South Korea's Kospi closed down 3.7% after reopening from a long weekend, hitting its lowest since mid-August. Chip heavyweights Samsung Electronics and SK Hynix slipped 4.4% and 4.5%, respectively, hitting multi-week lows.

In Taiwan, the benchmark declined as much as 1.1% before recovering to end flat as trade resumed after a holiday. TSMC fell 1.6% in its steepest daily loss since mid-September, ahead of earnings later this week that are expected to show record quarterly profit.

Investor scrutiny has intensified over massive fundraising by technology firms to finance high-end AI chips, as high energy costs, expectations of further monetary tightening and rising sovereign debt drive borrowing costs higher.

South Korea accounted for the bulk of equity outflows from Asia excluding China last month, with foreigners selling US$17 billion (RM69.4 billion) worth of equities.

The Kospi has seen five straight months of foreign outflows, likely reflecting persistent concerns about valuations and the sustainability of the semiconductor supercycle, ANZ head of Asia research Khoon Goh said in a note.

In Indonesia, stocks dropped as much as 2% to hit their lowest since July. The Jakarta Composite Index benefited from bargain-hunting last week, gaining nearly 1% despite lingering concerns over market transparency and investability.

"Foreign investors sold roughly 2.45 trillion rupiah of equities last week, despite the index gaining," said Glenn Yin, director of research at ACCM.

"High US yields and expensive oil leave the market vulnerable: they challenge capital inflows, pressure the rupiah and limit room for monetary easing. Today’s decline appears consistent with that vulnerability."

Among currencies, the South Korean won appreciated to 1,332.16 per US dollar, its highest since October 2024. It has been among the region's best-performing currencies this year, rising nearly 8%.

Christopher Wong, FX strategist at OCBC, called the won's move "largely flow-driven", attributing it to exporter dollar sales despite foreign equity outflows alongside easing in long-term Treasury yields and softer oil prices.

"We see room for further KRW appreciation, particularly if USDKRW breaks decisively below the 1,320–1,330 support zone... Further easing in US yields and oil prices could reinforce this move, although KRW's high-beta characteristics also leave it vulnerable to a reversal in global risk sentiment," Wong said.

Meanwhile, the Indian rupee surged about 1% after the central bank diverted oil firms' dollar purchases from the spot market and moved to restrain corporate demand for forward dollars.

Other regional peers held their ground, with the MSCI EM currencies gauge up 0.3%, hitting its highest since mid-September.

Uploaded by Magessan Varatharaja