Emerging markets, South Korea hit record highs on AI capex cycle

Emerging market equities have posted record highs driven primarily by AI and semiconductor enthusiasm concentrated in South Korea. The KOSPI surged 5% as SK Hynix and Samsung strength lifted regional sentiment, with JPMorgan raising its bull case target for the Kospi to 10,000 citing improvement in the semiconductor cycle and corporate governance reforms. Memory chipmakers in South Korea are positioned to benefit disproportionately from the global AI capex cycle, particularly from training and inference workload buildout in data centers. The bank raised targets for the second time in less than a month, signaling conviction on memory pricing and supply-demand dynamics.

However, emerging market participation masks significant divergence. India's Nifty, Bank Nifty and Sensex all declined 1-1.2% on May 11 amid oil and Iran concerns, as the currency and energy import burden weighed on domestic equities. Foreign investors now hold USD 21.3 trillion in US stocks, reaching a record 63% allocation, surpassing the dot-com bubble peak. This concentration reflects a flight to mega-cap US tech and AI names rather than broad emerging market strength. Emerging currencies including the rupee, Philippine peso and Thai baht have weakened sharply due to energy import shocks from the Iran war.

The narrative fractures between Korea-centric semiconductor strength and broader emerging market weakness driven by energy prices and currency deterioration. SK Hynix is up 9% at the Korean open, and trading notes point to memory tech as the clear winner from global AI capex cycles. But India, Indonesia, Philippines and other energy importers are facing margin pressure, central bank challenges and currency support requirements. Pimco's views on rate-hike risks due to Iran-driven inflationThe rate at which prices rise across an economy. hit emerging market central banks particularly hard, as currency weakness and commodity inflation create a stagflationary squeeze.

The watch is whether Korea's memory strength can sustain relative outperformance, or whether a broader emerging market correction pulls down regional indices. JPMorgan's 10,000 Kospi target assumes continued memory pricing strength and no major shock to the semiconductor capex cycle. If Hormuz ceasefire news breaks and oil prices collapse, energy importers could stabilize. If semiconductor valuations compress due to retail exhaustion, Korea's entire case unwinds.