Asia Stocks Rebound After Tech Rout; Indonesia Plunges 11% on MSCI Downgrade

Asian stocks rebounded on Friday, recovering part of the previous session’s steep losses triggered by worries over AI investment financing and the prospect of higher US interest rates. The recovery was uneven, with Indonesia suffering a historic collapse on a potential index downgrade.

South Korea’s KOSPI climbed 3.3%, according to Reuters, after plunging nearly 8% on Thursday, a drop that triggered temporary circuit breakers. Japan’s tech-heavy Nikkei 225 rose 1.9%, recovering some of Thursday’s 4.9% tumble. Australia’s S&P/ASX 200 gained 1%. Hong Kong’s Hang Seng Index added 1%, while mainland Chinese blue chips were little changed.

The rebound followed a modest recovery on Wall Street, where the S&P 500 and Nasdaq Composite ended a three-session losing streak. US stock futures edged higher in Asian trading.

**Indonesia Rout Deepens**

The standout loser was Indonesia. The Jakarta Composite Index slumped 11%, its biggest one-day decline since the 1998 Asian Financial Crisis, after index provider MSCI said the stock market no longer merited “emerging market” classification. The warning sets up a potential downgrade that could force passive funds to pull money from the country.

“The proposal highlights MSCI’s dissatisfaction with the pace of reforms and raises further questions about the investability of the market,” said Tan Altundag, investment manager for emerging equities at Pictet Asset Management, as reported by Reuters. “The investment implications could be significant.”

**Tech Rout Triggers**

Thursday’s global selloff was sparked by concerns over the debt pile of AI cloud provider CoreWeave, after its bond yields reached levels associated with distressed debt. The Nvidia-backed company’s shares slumped 15.5% on Wednesday, triggering a broad selloff in AI-related stocks.

Adding to pressure on semiconductor stocks, China’s ChangXin Memory Technologies (CXMT) reported progress on a next-generation DRAM architecture, threatening established manufacturers like SK Hynix and Micron.

**Fed and BOE in Focus**

Investors remain focused on the path of US monetary policy after stronger-than-expected inflation data raised the prospect of further rate hikes. Markets see about 28% odds of a rate hike at the Federal Reserve’s meeting at the end of this month, according to one report.

Fed Chair Kevin Warsh, speaking at IMF/World Bank meetings in Bangkok on Friday, voiced optimism about US economic strength but gave little away on rate decisions, repeating that he does not “prejudge meetings.”

Bank of England Governor Andrew Bailey said soaring energy prices due to the Iran war had so far had limited impact on wider inflation in Britain, but it was too soon to draw firm conclusions.

**Oil and Currency Markets**

Crude oil prices remained elevated. Brent crude futures traded near $106 a barrel, while US West Texas Intermediate hovered around $97. The cost of shipping US crude to Europe has fallen about 12% over the past week, supporting WTI’s relative strength.

The dollar limped towards its first weekly loss in five weeks as lower US Treasury yields eroded its appeal. The dollar index languished below 102 after a sharp pullback from a 1-1/2-year high. Gold inched higher to around $4,173, extending gains from Thursday’s safe-haven buying.

Analysts expect volatility to remain elevated as tech earnings roll out in coming weeks and markets continue to gauge the trajectory of interest rates. “Global markets could potentially be in for a protracted period of this sort of volatility,” Kyle Rodda, a markets analyst at Capital.com, wrote in a client note, as reported by Reuters.