Asia equities diverge as Japan and Korea lead

China-linked assets remain the weak link. The FXI China ETF has given back much of its earlier advance and was last at 34.86, below its 50-day moving average of 34.34 and still well under its 200-day average of 36.83, a sign the rebound has not yet become a sustained trend. By contrast, South Korea’s EWY ETF has recovered to 178.62, near its 50-day average of 181.05 and far above its 200-day average of 140.37, reflecting much stronger momentum in a market tied to semiconductors and the global AI supply chain.

Hong Kong has also struggled to keep pace, underscoring how investors still treat mainland China and the offshore Chinese market as a separate risk bucket from North Asia. The contrast is especially stark after months of choppy trading in China-focused funds, where rallies have tended to fade as soon as optimism around stimulus or earnings meets tougher questions about growth, property demand and the durability of policy support.

Macro signals are not helping Beijing’s case. Adalytica’s China Economic Growth Target sentiment gauge is at 96, marked “Extreme Greed,” while the yuan’s trade signals remain elevated at 73, suggesting markets are leaning into hopes of stabilization. But that optimism sits alongside persistent geopolitical strain: Washington is intensifying strategic competition with Beijing, from proposed restrictions on Chinese data-center components to efforts by US firms to reduce reliance on Chinese rare earths.

For investors, the message is that Asia is being priced by national story rather than regional theme. Tokyo and Seoul are benefiting from the global tech trade and comparatively better earnings visibility, while China and Hong Kong remain hostage to policy uncertainty, soft domestic demand and the risk that US-China friction spills further into supply chains and capital markets.

The next catalyst is whether Beijing can turn improving sentiment into harder data on growth and earnings. Until that happens, the market’s preferred trade in Asia looks likely to remain selective, with money continuing to favor Japan and South Korea over China and Hong Kong.