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The quarter in Asia Pacific markets

Asia Pacific equities split into two tiers in Q2 2026. The semiconductor-heavy markets — South Korea, Taiwan, and Japan — surged on global AI infrastructure spending, while commodity-linked and platform-economy markets lagged or declined.

KOSPI delivered the strongest quarterly gain at +67.8%, closing at 8,476.5. Taiwan’s TWSE finished at 46,125.9, up 45.4%. The Nikkei 225 rose 37.2% to 70,062.3, crossing the 68,000 level for the first time in early June. On the other side, the Hang Seng dropped 7.7% to 22,881.0, making Hong Kong one of the weakest major markets globally in the first half of 2026. The middle tier held steady: India’s Nifty 50 added 6.9% to 23,865.8, the Shanghai Composite gained 5.2% to 4,094.4, the Straits Times Index rose 5.8% to 5,170.6, and Australia’s ASX 200 added 3.5% to 8,778.7.

The dominant theme was a single word: semiconductors. Markets with direct exposure to the AI chip supply chain repriced violently higher, while markets without it were left behind.

Winners and losers

SK Hynix (000660.KS) was the quarter’s standout, surging 228.4% as HBM memory demand from hyperscaler AI buildouts accelerated. The stock overtook Samsung Electronics by market capitalisation in late June. Samsung itself (005930.KS) nearly doubled, rising 99.8%, and together the two names account for roughly 40% of KOSPI’s index weight — explaining the bulk of South Korea’s outsized quarterly gain.

Taiwan’s rally was similarly concentrated. MediaTek (2454.TW) gained 184.9%, ASE Technology (3711.TW) rose 107.0%, and Delta Electronics (2308.TW) added 42.0% — all direct beneficiaries of TSMC’s AI accelerator ecosystem. TSMC reported Q1 revenue of $35.9 billion with a 66.2% gross margin, setting the tone for the entire market. In Japan, Tokyo Electron (8035.T) surged 107.2% on semiconductor equipment demand, while SoftBank Group (9984.T) gained 67.7%.

The decliners told the opposite story. Xiaomi (1810.HK) fell 31.9%, Alibaba (9988.HK) dropped 21.9%, and CNOOC (0883.HK) lost 25.8% — Hong Kong’s weakness reflected both a failure to monetise AI at the platform level and liquidity strain from a heavy IPO pipeline. In mainland China, Wuliangye (000858.SZ) fell 28.3% and PetroChina (601857.SS) declined 26.8% as consumer and energy names underperformed. Nintendo (7974.T) was Japan’s notable outlier, falling 22.3% against the broader rally. Australia’s CSL (CSL.AX) dropped 18.5%.

What drove Q2 2026

Three forces shaped the quarter. First, the global AI capital expenditure cycle intensified. Hyperscaler spending commitments — estimated at $800 billion for 2026 by Goldman Sachs — flowed directly into Korean memory, Taiwanese foundry, and Japanese equipment makers. South Korea’s government reinforced the trend with an 800 trillion won semiconductor investment plan.

Second, the Bank of Japan raised its policy rate to 1.0% on June 16 — its highest level since 1995. Despite the hike, the yen weakened to 162.5 per dollar, its softest level since 1986, turbocharging export earnings for Japanese manufacturers and powering the Nikkei’s advance. Prime Minister Takaichi’s 6.4 trillion yen investment plan targeting AI, semiconductors, and defence added a fiscal tailwind.

Third, the US-China tariff overhang persisted. Effective tariff rates on Chinese goods remained around 30% following the Trump-Xi summit in May. The PBoC held the one-year LPR at 3.0% throughout the quarter after China’s Q1 GDP came in at a solid 5.0% year-over-year, reducing the urgency for rate cuts. The RBA, facing persistent above-target inflation, hiked to 4.35% in May before pausing in June.

Q3 2026 outlook

The setup heading into Q3 is a market with extreme dispersion. The semiconductor cohort enters the quarter extended — KOSPI is up 67.8% in a single quarter and SK Hynix has more than tripled — while Hong Kong and China enter it beaten down. The question for Q3 is whether the AI trade broadens or reverses, and whether macro catalysts shift the rotation.

The calendar is front-loaded. On July 16, two events land on the same day: China’s Q2 GDP release from the National Bureau of Statistics, and TSMC’s Q2 earnings call. The GDP print will be the first full post-tariff-shock reading of the Chinese economy. TSMC’s results will either validate or challenge the AI capex narrative that drove the entire quarter. Samsung follows with Q2 earnings on July 23.

Central banks are active through the quarter. The BOJ meets July 30-31 — the market will be watching whether Governor Ueda signals a further hike after the June move to 1.0%, and what that means for the yen at current levels. The RBA meets August 11 with the quarterly Statement on Monetary Policy, making it a live meeting for either direction. The RBI’s MPC meets August 4-6, and the Bank of Korea convenes July 16. Monthly PBoC LPR fixings on July 20, August 20, and September 21 remain the channel for any Chinese easing surprise.

What we’re watching

Semiconductor earnings versus positioning. TSMC (July 16) and Samsung (July 23) will determine whether the AI trade has further to run after a quarter of triple-digit gains in the supply chain. Any guidance miss will test crowded positioning hard.

China’s Q2 GDP (July 16). A number materially below Q1’s 5.0% pace would open the door to PBoC easing and could trigger a rotation toward beaten-down Hong Kong and mainland names.

BOJ forward guidance (July 31). A hawkish signal from Ueda would pressure the yen lower still, extending the Nikkei’s export-earnings tailwind — but also raising intervention risk from the Ministry of Finance.

US-China tariff trajectory. The fragile trade truce held through Q2. Any escalation in Q3 — or any relaxation — would move the Hang Seng and Shanghai Composite more than any earnings print.