Asia Monthly Jul2026

Just as the technology trade that carried the first half of the year appeared unassailable, it wavered, and Korea offered a vivid lesson in how quickly a crowded market can turn. This month, we reflect on what the market’s sharp swings teach us about positioning, why credit markets may be sending a more honest signal than equities about the sustainability of the current capex cycle, and why historically extreme sector dispersions tend to resolve in favor of balanced portfolios. Enjoy!

Market Review MSCI AC Asia July marked a sharp reversal of the AI-led trade that had driven markets through the first half of the -3.18%1 year. A global semiconductor selloff that began in US chip names late in the month spread across Asia, unwinding crowded positions in the North Asian AI complex. South Korea and Taiwan were the region’s laggards, while China, Indonesia, Singapore, and Hong Kong led. The move was concentrated in Information Technology (-12.65%) and Industrials (-6.55%), while every other sector advanced, led by Consumer Discretionary and Real Estate. China Chinese equities rallied even as the hard data disappointed. Q2 GDP slowed to 4.3% y/y, the +9.49% weakest pace since Q4 2022, taking first-half growth to 4.7%.2 Both official purchasing managers’ indices (PMI) slipped into contraction in July, with manufacturing PMI at 49.2 (vs 50.3 in June) and non-manufacturing PMI at 49.0 (vs 50.2).3 Against that soft backdrop, the market was driven by a rotation into attractively valued internet and technology names, by expectations of additional policy support around the late-July Politburo meeting, and by a broadening of leadership away from the crowded North Asian AI trade. Hong Kong also advanced in parallel, supported by firm southbound flows and the same rotation into large-cap internet platforms. India Indian equities edged higher, driven by a return of foreign buying alongside resilient domestic +1.78% demand. Retail inflation accelerated to 4.38% in June, the highest reading since December 2024 and above the 4% midpoint of the Reserve Bank of India’s target band, as the earlier energy shock fed through to fuel and firmer food prices.4 Business activity cooled in July, with manufacturing PMI easing to 53.5 (vs 54.2 in June), while services PMI fell more sharply to 53.3 from 57.4 on slower domestic demand and stronger competition.5 The India-UK Comprehensive Economic and Trade

1 Note: All return figures are in USD terms unless stated otherwise. 2 Source: National Bureau of Statistics of China, July 2026 3 Source: Ibid. 4 Source: Ministry of Statistics and Programme Implementation, July 2026 5 Source: S&P Global Purchasing Managers’ Index, August 2026

Agreement took effect on July 15, eliminating tariffs on around 99% of Indian exports to the United Kingdom. South Korea South Korea was the region’s weakest market by a wide margin, even as its export engine set fresh -17.11% records. July exports rose 62.8% y/y to a record USD 98.9 billion, with semiconductor shipments above USD 40 billion for a second consecutive month and the trade surplus exceeding USD 30 billion.6 The disconnect defined the month: the KOSPI posted one of its steepest monthly declines in decades as the AI trade unwound, with investors questioning earnings sustainability, the index’s heavy concentration in a handful of memory names, and the prospect of intensifying competition from Chinese chipmakers. The sell-off spread beyond tech, with circuit breakers and margin calls on leveraged retail positions triggering broad-based selling across all sectors in Korea. Taiwan Taiwanese equities corrected alongside the broader chip complex after months of AI-driven gains. -5.29% The decline was led by the large-cap semiconductor names that dominate the index, which fell in sympathy with a sharp drop in US chip shares even as second-quarter earnings and export data stayed strong. The underlying demand backdrop was little changed, with the move largely reflecting positioning and valuation rather than a deterioration in fundamentals. ASEAN ASEAN outperformed as capital rotated toward cheaper, less AI-exposed markets. Indonesia Rebounded (+11.17%) was the standout, extending a…