Asian equities advanced on Friday, following Wall Street’s overnight rise as semiconductor shares rallied and AI-linked demand expectations firmed after strong earnings from Microsoft and Amazon. In South Korea, the KOSPI Composite rose over 14.5%, with SK Hynix up by over 25% and Samsung Electronics gaining over 20%. Support also came from a planned 20 trillion won sovereign wealth fund aimed at strategic industries, while June industrial production increased 2.3%, the fastest monthly pace in six years.
Japan’s Nikkei 225 added 3.5% to around 64,050 after the Bank of Japan held its policy rate at 1% in an 8–1 vote; Hajime Takata dissented in favour of a hike, citing upside inflation risks linked to Middle East conflicts. In China, the SSE Composite rose 0.70% to roughly 3,830 and the Shenzhen Component jumped over 3% to 13,700, while Hong Kong’s Hang Seng slipped nearly 0.10% to around 25,830. Macro signals were weaker: the NBS Manufacturing PMI fell to 49.2 in July from 50.3, and the Non-Manufacturing PMI dropped to 49.0, both below 50.0 estimates. Separately, Zhongji Innolight fell on its Hong Kong debut after raising HK$53.4 billion in an IPO.
South Korea and Japan: Volatility and Hedging Opportunities
With South Korea’s KOSPI surging and the government launching a 20 trillion Won sovereign wealth fund, we expect a major shift in market dynamics. Since the Finance Ministry is actively introducing measures to curb equity market volatility, implied volatility on Korean tech giants like Samsung and SK Hynix is bound to contract. We should look to write out-of-the-money put options or deploy credit spreads on these tech giants to capture high premiums before they shrink.
In Japan, the Nikkei 225 has climbed to an impressive 64,050 following the Bank of Japan’s decision to hold interest rates at 1%. However, with inflation risks rising from Middle East conflicts and one policymaker already dissenting in favor of a hike, this rally remains fragile. We suggest buying defensive put options on the Nikkei to hedge against a sudden hawkish shift or geopolitical shock in the coming weeks.
China and Hong Kong: Slowdown and Defensive Strategies
China’s latest economic data paints a bleak picture, with both manufacturing and non-manufacturing PMIs dropping below the crucial 50.0 expansion threshold to 49.2 and 49.0 respectively. This ongoing weakness, combined with a lukewarm reception for major tech listings in Hong Kong, suggests that the market lacks real upward momentum. We advise purchasing put options on the Hang Seng Index to capitalize on this deepening economic slowdown.
