Asian equities were mixed on Tuesday as markets weighed signs of progress towards reopening the Strait of Hormuz. Mediators said a deal to fully restore access was nearing, following US self-defence strikes in southern Iran on Monday that, according to a US Central Command spokesperson, hit missile launch sites and Iranian vessels attempting to lay mines. The White House maintained it was acting to protect its forces while exercising restraint during the ceasefire, and US President Donald Trump said talks to end the conflict and reopen the waterway were proceeding well.
South Korea’s KOSPI rose 3.19% to near 8,100, easing after touching a record 8,131, with AI-linked semiconductor names supported by earnings expectations and demand for high-bandwidth memory. Japan’s Nikkei 225 slipped 0.4% to about 64,900, while Topix edged up 0.11% to around 3,950, after Monday’s surge past 65,000; technology shares retreated. Hong Kong’s Hang Seng gained 0.45% to above 25,700, led by financials and electronic technology, as Semiconductor Manufacturing International Corporation jumped 9.1% and Lenovo climbed 10.7%, while Xiaomi faced pressure after short bets hit a record high.
Geopolitical Developments and Market Volatility
With diplomatic progress being made to reopen the Strait of Hormuz, we see a reduction in geopolitical risk that could calm markets in the coming weeks. This suggests a decrease in implied volatility, making it an opportune moment to consider selling options. We believe selling out-of-the-money put spreads on broad Asian indices could be a good strategy to collect premium as market fears subside.
The record-breaking rally in South Korea’s KOSPI, driven by AI chip demand, is a powerful trend we need to engage with. We should look to gain further upside exposure by buying call options on semiconductor leaders like Samsung Electronics and SK hynix. Recent industry data reinforces this view, with global AI semiconductor revenue projected by firms like Gartner to grow over 15% annually through 2028, confirming robust long-term demand.
Strategic Positioning in Japan and Hong Kong
Japan’s Nikkei is pausing after hitting an all-time high, which is a classic sign of profit-taking and potential for a short-term pullback. To protect our existing gains, we should consider buying protective puts on the Nikkei 225 Index. Historically, it is common for markets to see a brief 3-5% correction after hitting such significant milestones before resuming a long-term upward trend.
In Hong Kong, we see a clear divergence between strong tech performers and struggling names like Xiaomi, which is facing record short interest. This is a setup for a pair trade where we can go long on a name with momentum like Lenovo and simultaneously buy puts on Xiaomi. Data from financial analytics firms shows short interest in Xiaomi recently climbed above 8% of its free float, validating concerns about competition in the EV space.
