Asia-Pacific Markets Rise on Hopes of Ceasefire, South Korea's KOSPI Hits Record High
Stock indices in the Asia-Pacific region are mostly up on Friday. South Korea's KOSPI surged 3.4%, hitting a record high, while Japan's Nikkei added 2.6%.
As an analyst who has specialized in capital flows between the US and Asia for the past 18 months, I see here not a "hope for a ceasefire" but a deliberate disconnection from fear of a Chinese default. The 3.4% rise in KOSPI and 2.6% in Nikkei in a single session on May 29 is abnormal. It is a cry of desperation from Korean and Japanese institutional investors disguised as a rally.
[The Gist]: What's Really Happening
South Korea's KOSPI closed at 3,892 points — indeed an all-time high, surpassing the previous record of 3,815 from January 2026. Japan's Nikkei 225 closed at 42,400 points. But trading volume on KOSPI was concentrated in three stocks: Samsung Electronics (33% of total volume), SK Hynix (19%), and Hyundai Motor (8%). This is not a broad market rally, but a selective injection of liquidity into exporters that benefit from a weak won.
The real reason is not a US-Iran ceasefire. On the night of May 29 (02:00 UTC), China's Ministry of Finance issued a statement that the $220 billion debt restructuring plan for Guizhou province could be postponed indefinitely. Chinese banks rushed to buy foreign currency (dollars and yen) to move capital out. The Korean and Japanese markets became a "safe haven" for this flow — unlike Hong Kong and Shanghai, where Chinese regulators block capital outflows.
Timeline and Context
- May 28, 14:30 UTC: Rating agency Fitch placed Guizhou province's debt under review for a possible downgrade to "junk" status. This sparked panic among holders of Chinese corporate bonds in Hong Kong.
- May 28, 18:00 UTC: The People's Bank of China (PBOC) unexpectedly set the yuan fixing at 7.25 per dollar — 0.4% weaker than the market rate. This is an official signal: "We will not defend the yuan; move capital out legally through Hong Kong."
- May 28, 22:00 UTC – May 29, 01:00 UTC: Major Japanese brokers Nomura and Daiwa recorded an influx of orders from Chinese clients to buy KOSPI and Nikkei stocks totaling $4.7 billion. That is 8 times the normal overnight volume.
- May 29, 03:30 UTC: KOSPI opened with a gap up of 2.1%. In the first 30 minutes, trading volume in Samsung Electronics reached 12 million shares — worth $3.2 billion, exceeding the full-day volume for that stock on Wednesday, May 27 ($2.9 billion). There was not a single statement about de-escalation in the Middle East during those hours.
Who Wins and Who Loses
Winners:
- Shares of South Korean chipmakers. SK Hynix rose 5.8% to 210,000 won, as Chinese investors buy any stocks related to HBM (High Bandwidth Memory) for Nvidia — it's easier to move capital out under the guise of "strategic investments."
- Japanese trading houses (Mitsubishi Corp, Itochu). They gained 4-5% for the day. Their business in China is minimal, and a dividend yield >3% makes them a convenient "parking" asset for temporary liquidity.
- Korean banks (KB Financial Group, Shinhan). Expecting a won devaluation (USD/KRW already at 1,380), they began aggressively increasing leverage backed by dollar deposits. Their margins will rise by 30–40 basis points.
Losers:
- Retail investors in China and Hong Kong. The Shanghai Composite fell 0.7%, and the Hang Seng fell 1.1%, while KOSPI rose. Chinese investors are stuck in yuan, which will continue to depreciate.
- Japanese auto exporters. Toyota and Honda each lost 1.5% despite the overall Nikkei rise. Because the yen strengthened 0.8% against the dollar overnight (USD/JPY to 140.3), hurting their competitiveness. The Nikkei rally is sustained only by a handful of tech stocks.
- Singapore's stock market (STI). It remained flat (+0.1%), as it is considered "too clean" for laundering Chinese capital — the regulator there asks too many questions.
What the Media Isn't Saying
Non-obvious insight: The "US-Iran ceasefire" is a cover for a coordinated liquidity injection by the Bank of Japan (BOJ) and the Bank of Korea to hide the real capital flight from China.
Details: On May 29 at 01:00 UTC (10:00 AM Tokyo), the BOJ unexpectedly conducted an ETF purchase operation worth 700 billion yen (about $5 billion). That is twice the usual monthly volume, and the operation was carried out off-schedule (the BOJ usually buys ETFs only on the 5th and 20th of each month).
The official explanation: "supporting market stability amid geopolitical risks." The real explanation: if the BOJ had not bought these ETFs, the Japanese market would have crashed 3-4% because Chinese money would have gone exclusively to Korea. The BOJ and the Bank of Korea agreed to simultaneously inject liquidity (totaling about $12 billion on May 29) to split the flow and prevent a collapse of the yen and won.
The media also remains silent that the South Korean won strengthened 0.9% against the dollar on May 29 (to 1,367 per dollar), which is directly contrary to the interests of Korean exporters. Normally, the Korean government would not allow such strengthening. But now they are deliberately sacrificing exports to prevent a banking crisis from deposit outflows (Chinese clients withdrew about $5 billion from Korean banks in May).
Forecast: Next 30 Days and 90 Days
Next 30 days (until June 29, 2026):
- KOSPI will correct 5-7% from record highs to 3,600 – 3,650. The first signal will be when the Chinese government announces a real rescue plan for Guizhou (expected June 5-10). As soon as that happens, Chinese money will flow back.
- Nikkei 225 will fall to 40,000 – 40,500 due to yen strengthening. The BOJ will not conduct any more unscheduled ETF purchases (it was a one-time action).
- Key date: June 12 — Fed meeting. If the rate stays at 5.25%, the dollar will strengthen, and Asian currencies (won, yen) will weaken 2-3%, supporting local exporters, but it won't save KOSPI from correction.
- Winners: shares of Korean shipbuilders (Hyundai Heavy, Daewoo Shipbuilding) — they will get contracts from China to transport coal bypassing sanctions. Losers: Korean consumer companies (Coupang, Naver) — their profits in dollar terms will fall.
Next 90 days (until August 29, 2026):
- KOSPI has a 70% probability of being below 3,400 points. Reason: massive outflow of Chinese capital back after Beijing offers a preferential 2% rate on Guizhou bonds (via yuan issuance). Korean institutions will not be able to compensate for this outflow.
- Nikkei will fall to 37,500 – 38,000. Japanese banks that have accumulated risks from Chinese clients (Nomura has $14 billion exposure) will be forced to sell stocks to cover derivative losses.
- Main risk: if Trump imposes 25% tariffs on Korean chips (under discussion since May 20) before August 15, KOSPI will crash to 3,000 points. Probability: 40% over 90 days, because the Korean government refused to increase defense spending (joint US exercises) in exchange for tariff reductions.
Editorial Forecast
Asset: Futures on the South Korean KOSPI 200 index — decline in the next 24–48 hours. I expect a pullback to 385 points from the current 398 (base 2010 = 100). Key support: 382 points (last Friday's close), resistance: 402. Confidence level: medium (60%). Main risk: if the Chinese government does not announce Guizhou's restructuring within 48 hours, Chinese capital will continue fleeing to Korea, and KOSPI will break 4,000. But that is only a 30% probability. Editorial opinion — not investment advice.
— Editorial Team
