Asian stocks lose steam as global bond yields rise; AI rally loses momentum on inflation fears

The AI-driven equity rally that had dominated markets for six weeks hit a wall in Asia Friday as bond yields spiked on renewed inflationThe rate at which prices rise across an economy. fears and geopolitical supply disruptions. South Korea's Kospi briefly touched 8,000 for the first time, then reversed sharply as traders reassessed the sustainability of the move. This is a classic momentumThe empirical fact that winners keep winning over the medium term. exhaustion pattern: every tick higher in yields and CPI expectations triggers profit-taking in the highest-beta names (semiconductor stocks, mega-cap tech) that had driven the rally.

The mechanical pressure is straightforward. Rising Treasuries yields reduce the present value of future tech earnings, particularly for unprofitable AI infrastructure players. NVIDIA, despite approval for China chip sales, faces margin compression if rates stay elevated for longer. The bond market is pricing in a longer hold by the Fed before any cuts, and this contradicts the narrative of declining rates that had supported the AI capex narrative all year. Copper extended its retreat from record highs as inflationThe rate at which prices rise across an economy. fears reduced the chance of rate cuts; this is a broad-based reflation check, not isolated to tech.

Geographic rotation is emerging. JPMorgan raised its Taiwan bull-case target for the 'pure-play AI exposure,' but this recommendation comes with a caveat: Taiex (Taiwan index) has also stalled as global yields rise. India's rupee defense reassures local stock bulls, but the underlying macro is tightening. Pension funds that had rotated into mega-cap tech growth are now reassessing allocation and trimming positions. BCI (British Columbia pension) shut two global stock-picking strategies, citing a shrinking public pool; this is institutional capital fleeing equities into fixed income as rates become competitive again.

The contrarian view notes that breadth has improved and that sentiment, while deteriorating, is not yet at capitulation levels. Small caps (Russell 2000) and value stocks have outperformed mega-cap growth over the past week, suggesting that market participants are rebalancing rather than panicking. However, if bond yields rise another 50 basis points, expect more violent de-rating of the Magnificent Seven, and potential cascades in leveraged tech funds.