Nikkei 225, Kospi indices soar as Japan, South Korea bond yields plunge

Asian stocks jumped sharply, with top indices hitting their all-time highs, as their bond yields retreated. South Korea’s Kospi Index rose to a record high of 8,105 KRW, bringing its 12-month gains to 208%. Japan’s Nikkei 225 Index soared to ¥65,000, up by 75% in this period.

Japan and South Korean bond yields retreat

Asian stocks remained in a bull market on Tuesday as investors continued waiting for the upcoming US-Iran nuclear deal and the falling crude oil prices. 

Brent, the global benchmark, plunged to $95 from last week’s high of $105, while the West Texas Intermediate (WTI) fell to $91. This trend may continue in the near future, especially if the two sides ultimately reach an agreement that reopens the Hormuz Strait.

Japan and South Korea would be among the top beneficiaries of the deal because of the vast amount of oil they ship from the Middle East. the two countries have been forced to dig deeper into their oil reserves and import more oil from other countries. 

These hopes explain why their bond yields have plunged this week, with hopes that inflation will come down eventually. In South Korea, the ten-year bond yields dropped to 4.053%, its lowest level since May 14 this year. It peaked at 4.3% earlier this month. 

The same is happening in Japan, where the ten-year fell to 2.71% from a high of 2.810%. Similarly, US bond yields have cratered, with the ten-year falling from this month’s high of 4.68% to 4.50% today.

Falling bond yields benefit stocks for two main reasons. First, they make these assets less attractive, leading to a rotation from bonds to stocks. Second, they influence interest rates that companies pay to their creditors. 

AI stocks are leading the charge

Companies are leading the Nikkei 225 and Kospi indices in the artificial intelligence space. In Japan, Softbank's stock price jumped by over 10% today, extending its recent gains. The company is benefiting from the upcoming IPOs of companies like OpenAI and SB Energy. 

Taiyo Yuden, another company benefiting from the AI boom, was also one of the top beneficiaries. It jumped by 8.50% today. Taiyo makes Multilayer Ceramic Capacitors, which are used in smartphones and other items. The other top gainers in the Nikkei 225 Index today were Taisei Corporation, Kawasaki Heavy Industries, Kajima Corporation, and Renesas Electronics. 

AI companies also led the charge in South Korea. Samsung Electronics' stock jumped by 2.5%, with its market capitalization soaring to over $1.2 trillion. This is important because South Korea has a GDP of $1.9 trillion. SK Hynix stock jumped by over 7% as investors placed bets that memory prices will keep rising this year. 

Still, there are growing concerns that the Kospi and Nikkei 225 have become overvalued. Kospi spots a price-to-earnings ratio of 17, higher than its historical average. Similarly, the Nikkei 225 Index has a multiple of 17.8. On the positive side, these multiples are better than those of the S&P 500 and Nasdaq 100 indices.