Asian stocks rebound as Middle East tensions ease, AI selloff abates

TOKYO (AP) — Asian stocks rebounded Monday from their steepest decline since March, driven by a cooling of geopolitical tensions in the Middle East and a stabilization in the artificial intelligence sector.

Major benchmarks across the region posted gains as investor sentiment improved following a week of volatility. The Nikkei 225 in Tokyo rose 1.8 percent, while South Korea's KOSPI climbed 1.5 percent. Hong Kong's Hang Seng index added 2.1 percent, recovering from a sharp sell-off that had seen the region's markets tumble earlier in the week.

The recovery came as diplomatic efforts appeared to reduce the risk of a broader conflict in the Middle East. Markets had been weighed down by fears that escalating hostilities could disrupt energy supplies and global trade routes. With no new major incidents reported over the weekend, investors began to rotate back into riskier assets.

Simultaneously, the correction in technology stocks, particularly those tied to artificial intelligence, showed signs of bottoming out. The sector had been the primary driver of the previous week's losses, as high valuations prompted profit-taking and a reassessment of growth expectations. The stabilization of these shares provided a crucial lift to regional indices, which remain heavily weighted toward technology and semiconductor manufacturers.

"The market was looking for any sign of de-escalation," said a senior portfolio manager in Singapore. "Once the geopolitical overhang lifted, the technical rebound in tech stocks provided the momentum needed to reverse the trend."

Despite the gains, uncertainty remains regarding the sustainability of the recovery. Analysts note that while the immediate pressure has eased, underlying economic concerns persist. Inflation data from major economies is due later this week, and central bank policy decisions will continue to influence capital flows.

The semiconductor sector, a key component of Asian markets, showed mixed results. While some major chipmakers posted gains, others remained under pressure as supply chain concerns linger. The broader technology sector's performance will be closely watched in the coming days to determine if the rebound is a sustained recovery or a temporary pause in a broader correction.

Investors are also monitoring the U.S. market's performance, which has historically influenced Asian trading sessions. With U.S. markets closed for a holiday, the focus remains on regional economic data and corporate earnings reports scheduled for later in the week.

The rebound marks a significant shift from the previous week's panic, but traders caution that volatility could return if geopolitical tensions flare again or if economic data disappoints. The coming days will be critical in establishing whether the market has found a firm footing or if further corrections are likely.

As trading continues, the focus remains on whether the easing of tensions in the Middle East and the stabilization of AI shares can sustain the momentum. For now, the immediate threat of a deeper sell-off has receded, but the broader economic landscape remains uncertain.