Nikkei’s 36% Quarter Tests Asian Markets

Asian equity markets closed the quarter with large gains concentrated in chip and AI-related stocks. The Nikkei climbed roughly 36% this quarter and was little changed in early trade while remaining on course for the quarterly advance. South Korea’s Kospi slipped about 1% in early trade but was set for nearly a 65% rise in the second quarter; Taiwan’s main index was headed for a gain above 40%.

Foreign investor flows did not follow the headline gains uniformly. Estimated net equity outflows from South Korea totalled $17.3 billion year-to-date even as chipmakers lifted the benchmark. BNY strategists characterise that pattern as fund rebalancing prompted by large index weightings rather than broad selling.

Currency moves added pressure to the markets. The yen weakened to 162.41 per dollar in Asian trade, its weakest level since 1986, renewing the risk of official intervention. The dollar was positioned for a fourth straight quarterly gain after markets repriced expectations for US interest rates.

Market participants are focusing on upcoming remarks from the Federal Reserve chair and US jobs data due on Thursday, with US markets closed on Friday for Independence Day.

Brent crude traded near $72 a barrel, roughly back to pre-conflict levels, while the US-Iran ceasefire remained fragile. Strategists at JPMorgan Asset Management noted that the pullback in oil supports a scenario of growth moving closer to trend rather than a weaker path that had been feared earlier this year.

Market internals showed the rally was concentrated in AI-linked and semiconductor stocks. Fund managers trimmed positions where index weights became large, a shift that coincided with renewed interest in Europe, mainland China and sectors such as defence and renewables.

Official Chinese data showed manufacturing activity expanded in June, supported by high-tech exports; analysts view that result as a modest boost to risk appetite.

The quarter may finish with record returns for several Asian markets. Investors will watch currency swings and energy prices for signs of further repositioning in the coming quarter.