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# The World's Bull Market Was One Trade. Last Week It Sold Off Like One.
- URL: https://www.leadlagreport.com/the-worlds-bull-market-was-one-trade-last-week-it-sold-off-like-one/
- Published: 2026-10-27T14:30:00.000Z
- Updated: 2026-10-27T14:30:01.000Z
- Description: The AI hardware trade in Korea, Taiwan and Japan sold off together last week while India held steady. Why the yen carry trade and back-to-back Fed and Bank of Japan decisions make the coming week the real test.
- Author: Michael A. Gayed, CFA
- Tags: Global View, Weekly

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# The World's Bull Market Was One Trade. Last Week It Sold Off Like One.

### *Korea fell 17% in October, Taiwan 7% and Japan 3%, while India barely moved. The yen firmed, JGB yields fell and the Bank of Japan meets Oct. 29 to 30, the day after the Fed. What the AI hardware selloff and the yen carry trade tell a global allocator.*

**MICHAEL A. GAYED, CFA**

**For most of 2026 the global bull market has been one trade wearing three flags: Taiwan, Korea and Japan were all the same AI hardware bet, financed in part by borrowed yen. Last week that trade sold off the way one trade does. On October 22 Korea's KOSPI fell 3.52%, the Nikkei 225 fell 2.65% to its lowest close since July 30, and the yen strengthened to its firmest level in more than a month. India, the market everyone abandoned, barely moved in October. Now the Bank of Japan meets on October 29 and 30, the day after the Fed.**\[1\]\[2\]\[3\]\[4\]

## Key Highlights

- From September 30 to October 23, the South Korea ETF (EWY) fell 17.2%, Taiwan (EWT) 7.1% and Japan (EWJ) 3.4%, while India (INDA) fell 0.5% and the S&P 500 ETF (SPY) 0.3%.\[4\]
- The KOSPI closed at 5,550.30 on October 23, about 41% below its 52-week high of 9,385.59\. The Nikkei 225 closed at 62,693.16, about 14% below its high of 72,831.73, by my arithmetic.\[5\]
- Advantest, Tokyo Electron and SoftBank Group accounted for about 1,110 points, roughly 65%, of the Nikkei's 1,713-point fall on October 22.\[2\]
- The yen rose to 156.08 per dollar on October 23, its strongest in more than a month, and the 10-year JGB yield fell for a fifth straight session to 2.795%.\[3\]\[6\]
- 83% of economists surveyed by Bloomberg now expect the next BoJ hike in December, up from 35% a month ago, and none expect a move this week.\[7\]

## The Trade Told The Truth

The selloff did not start in Asia. It started with doubts about whether the money being spent on AI infrastructure will earn a return. Japan's chip stocks fell as investors weighed "the outlook for artificial intelligence-related spending in 2027," and Lam Research's wide outlook range spread selling into semiconductor equipment and materials names.\[8\]\[9\] On October 22 the Nikkei's semiconductor index fell 5.28%.\[10\]

Look at how concentrated the damage was. Three stocks, Advantest, Tokyo Electron and SoftBank Group, delivered about 65% of the Nikkei 225's decline that day.\[2\] In Seoul, Samsung Electronics fell 4.03% and SK Hynix 5.49%, and the KOSPI dropped 3.52% to 5,533.78.\[1\] Same story, same day, three exchanges.

That is what I meant by one trade. When a market's gains come from the same handful of hardware suppliers to the same handful of hyperscalers, the diversification you think you own by holding Japan, Korea and Taiwan is mostly an illusion. The flags differ. The factor exposure does not.

![Bar chart of October 2026 returns through October 23: South Korea ETF down 17.2 percent, Taiwan down 7.1 percent, Japan down 3.4 percent, India down 0.5 percent, S&P 500 down 0.3 percent](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/10/chart_1_october.png)

The October scoreboard makes the point better than any argument. Korea, the most concentrated of the three, lost 17.2% in dollars. Taiwan lost 7.1%. Japan, with a broader index and a large domestic sector, lost 3.4%. India lost 0.5%.\[4\] The further a market sat from AI hardware, the better it held up.

## The Year In One Chart

Step back to the full year and the shape is even clearer. Rebased to December 31, the Korea ETF is still up 55.6% and Taiwan 65.1%, against 16.5% for Japan, 11.4% for the S&P 500 and a loss of 14.0% for India.\[4\] Korea's ETF peaked on June 18 and is now 31% below that high. Taiwan's peaked on October 5 and is 11% lower.\[4\]

![Line chart of country ETFs rebased to 100 at the end of 2025, showing South Korea and Taiwan far ahead, Japan and the S&P 500 moderately higher and India below 100 through October 23, 2026](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/10/chart_2_ytd.png)

I do not read that chart as a reason to call the end of AI. The earnings behind the rally are real. I read it as a measure of how much of the world's equity return in 2026 depended on one supply chain, and how quickly that dependency shows up in prices when sentiment turns. The KOSPI's own 52-week range runs from 3,833.35 to 9,385.59.\[5\] That is not a market pricing a steady compounding story. It is a market pricing a cycle.

## Taiwan Is The Tell

Taiwan deserves its own line, because it is the purest version of the trade and it held up best of the three. The TAIEX closed at 46,041.43 on October 22, down 1.81% on the day and about 7.9% below its 52-week high of 49,968.92, by my arithmetic.\[5\] The Taiwan ETF is still up 65.1% for the year.\[4\] Taiwan Semiconductor fell only 0.6% on the worst day for Korean memory makers.\[11\]

That gap inside the trade matters. Memory makers in Korea and equipment makers in Japan sit further out on the capital spending cycle than the foundry everyone depends on. When investors question spending into 2027, they sell the suppliers whose orders depend on next year's budgets first, and they keep the company that gets paid either way. If Taiwan starts falling as fast as Korea, the market has moved from doubting the pace of spending to doubting the spending itself.

## The Oil Overlay

There is a second pressure on these markets that has nothing to do with chips. Japan, Korea, Taiwan and India all import most of their oil. Brent settled at $116.72 on October 23, its highest since April 29.\[12\] For an importer, that is a tax on households and a drag on the trade balance, and it pushes the currency the wrong way at the wrong time.

That is part of why the yen stayed weak for most of October despite a hike in September, and part of why Japan's inflation moved back above target.\[13\] It also complicates the BoJ's job. A central bank that tightens to defend its currency against an oil shock risks slowing an economy that the oil shock is already slowing. The BoJ has said, through the Nikkei, that it wants to assess the effect of September's hike before moving again.\[14\] Oil gives it reasons to wait and reasons not to.

For a U.S.-based investor holding these markets through dollar-denominated ETFs, the currency is part of the return. A firmer yen raises the dollar value of Japanese stocks even on days the Nikkei falls, so a yen rally cushions a dollar-based holder at exactly the moment the carry trade unwinds. The yen ETF (FXY) is roughly flat on the year, which tells you the currency has not yet moved enough to change that math in either direction.\[4\] If the BoJ signals December and the Fed signals patience, it may.

## The Fuse Is Still Borrowed Yen

The second part of the story is funding. Cross-border yen borrowing, a common proxy for the carry trade, reached a record 360 trillion yen, about $2.34 trillion, as of March, according to a Jefferies analysis of Bank for International Settlements data.\[15\] That is the largest carry build-up in three decades.\[15\]

A carry trade works as long as the funding currency stays weak and volatility stays low. Last week both conditions wobbled. The yen rose to 156.08 per dollar on October 23, its strongest level in more than a month, and was on track for a weekly gain of 0.7%, its largest since early September.\[3\] The pair ended Friday near 156.81.\[16\] MUFG Research tied the move to risk aversion during the tech selloff, even though U.S. policy rates remain 2.5 to 2.75 percentage points above Japan's.\[17\]

That last detail is the one I would underline. The rate gap still favors borrowing yen. The yen rallied anyway, because when equities fall, people close positions, and closing a yen-funded position means buying yen. The carry trade does not need the BoJ to hike to unwind. It needs a reason to sell the asset on the other side.

The bond market is pointing the same way. The 10-year JGB yield fell 8.5 basis points to 2.795% on October 23, its fifth straight decline and on track for its lowest close since early August.\[6\] Japanese investors bought their own government bonds as a haven, which is the opposite of the trade that pushed JGB yields to multi-decade highs earlier this year.

## What The BoJ Is Expected To Do

The consensus is clear. The Bank of Japan is expected to keep its policy rate at 1.25% on October 30, a month after raising it in September.\[14\]\[7\] The Nikkei newspaper reported that a senior BoJ official said, "Unless the situation is extremely urgent, consecutive rate hikes are out of the question."\[14\]

The debate has moved to December. In a Bloomberg survey released October 22, 83% of economists expected the next hike at the December meeting, up from 35% in the prior month's survey, and none expected one this week. Two-thirds now expect the BoJ to hike every three months, and the median terminal rate forecast is 1.75%.\[7\]

![Bar chart showing the share of economists expecting a December Bank of Japan hike rising from 35 percent in September to 83 percent in October 2026](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/10/chart_3_boj.png)

Why the shift? Japan's September core inflation rose above the BoJ's 2% target for the first time since December 2025.\[13\] Oil above $110 keeps that pressure on.\[13\] And the yen spent much of October around 158 to the dollar, about 5% weaker than early March, even after the September hike.\[13\] The BoJ cannot ignore a currency that weakens while it tightens.

The key question for October 30 is language, not rates. InvestingLive notes that the focus is whether the BoJ says underlying inflation has reached its 2% goal, which "would mark a historic shift and strengthen expectations of a December hike."\[7\] A statement like that, landing two days after the Fed decision, would narrow the rate gap that funds the carry trade from both ends at once if the Fed also signals it is close to done.

## The Week That Decides The Carry

This is the part that makes next week unusual. The Fed decides on October 28 and the BoJ on October 30.\[18\]\[19\] The two outcomes interact.

- **Fed hawkish, BoJ cautious.** The rate gap stays wide and the yen weakens back toward 158\. Carry trades rebuild. The AI hardware markets likely get relief if the tech news stabilizes.
- **Fed patient, BoJ hawkish.** The gap narrows from both sides. This is the scenario that most threatens yen-funded positions, and it is the one the bond market started pricing last week. I would expect Korea and Taiwan to feel it first, because they have the most foreign money in the most crowded names.
- **Both cautious.** Volatility settles, the yen drifts and the market goes back to arguing about AI earnings. That is the calm case, and the least likely to last given oil.

Analysts at Standard Chartered expect the BoJ to hold but "maintain a clearly hawkish tone," and they argue the BoJ "has an incentive to continue policy normalisation to support yield differentials and reduce the risk of renewed JPY weakness, particularly if the Fed resumes tightening."\[20\] That is the logic of the second scenario, stated by a bank that still expects the next hike in January.

## What About The Laggards?

The contrarian case all year has been that the better risk/reward sits with the markets the consensus abandoned, India in particular. Honesty requires a scorecard. India's ETF is still down 14.0% on the year.\[4\] In October it lost 0.5% while Korea lost 17.2%.\[4\] That is not a winning call yet. It is a market that did what an uncorrelated asset is supposed to do during a crowded-trade selloff: it did not participate.

I think that is the more useful lesson for anyone running a global allocation. A laggard does not need to rally to earn its place. It needs to behave differently when the leaders break. Through one hard week, India did. The test of the thesis is whether it can also rise once foreign selling exhausts itself, and that has not happened.

## What Would Change My View

- **The yen weakens through 158 after the BoJ.** That would say the carry trade survived the scare and the funding fuse is not lit.\[13\]
- **Korea recovers its October losses while the yen stays firm.** That would say the AI hardware trade has broader support than I think, and that the October selloff was positioning rather than a change in the story.
- **The BoJ declines to say underlying inflation has reached 2%.** December would become less certain and the narrowing-gap scenario would fade.\[7\]
- **JGB yields climb back above 3%.** That would say Japanese investors have stopped treating their own bonds as the haven, and the haven bid behind the yen is gone.\[6\]

One trade in three flags rallied together for most of the year. Last week it fell together. Next week two central banks decide how much of it was built on borrowed money.

**Few understand this.**

— — —

## Notes

- \[1\] KOSPI -3.52% to 5,533.78 and Nikkei -2.65% on Oct. 22; Samsung and SK Hynix moves: [TradingKey](https://www.tradingkey.com/analysis/stocks/more/262231586-japan-south-korea-stocks-kospi-nikkei-softbank-sk-hynix-samsung-kioxia-tradingkey?ref=leadlagreport.com).
- \[2\] Nikkei 225 down 1,713.40 points to 62,907.84, lowest close since July 30; Advantest, Tokyo Electron and SoftBank about 65% of the decline: [News On Japan, Oct. 22, 2026](https://newsonjapan.com/article/151116.php?ref=leadlagreport.com).
- \[3\] Yen at 156.08 per dollar on Oct. 23, strongest in more than a month; weekly gain of 0.7%: [EL7.AI, citing Reuters](https://el7.ai/en/news/2026-10-23-usdjpy-plunges-as-treasury-yields-retreat-and-safe-haven-demand-surges?ref=leadlagreport.com).
- \[4\] Daily closes for EWY, EWT, EWJ, INDA, SPY and FXY; returns and rebasing are my arithmetic: [Perplexity Finance](https://www.perplexity.ai/finance/EWY?ref=leadlagreport.com).
- \[5\] Index quotes for the Nikkei 225, TAIEX and KOSPI, including 52-week ranges: [Perplexity Finance](https://www.perplexity.ai/finance/%5EN225?ref=leadlagreport.com).
- \[6\] 10-year JGB yield down 8.5 basis points to 2.795%, fifth straight decline: [The Economic Times](https://economictimes.indiatimes.com/markets/us-stocks/news/safe-haven-demand-pushes-japans-10-year-yield-to-two-month-low/printarticle/135137115.cms?ref=leadlagreport.com).
- \[7\] Bloomberg survey: 83% expect a December BoJ hike, up from 35%; none expect October; 67% see a hike every three months; median terminal 1.75%: [InvestingLive](https://investinglive.com/central-banks/most-analysts-now-expect-the-next-boj-rate-hike-in-december-none-see-october-move-bloomberg/?ref=leadlagreport.com).
- \[8\] Japan chip stocks fall on concerns about AI spending into 2027: [The Economic Times](https://economictimes.indiatimes.com/markets/us-stocks/news/global-market-japans-nikkei-falls-as-chip-stocks-retreat-on-ai-spending-concerns/printarticle/135106795.cms?ref=leadlagreport.com).
- \[9\] Lam Research outlook range spread selling to chip equipment and materials stocks: [Kabutaro & Friends, Japan Market Daily](https://kabutaro777.com/en/economic-blog/?ref=leadlagreport.com).
- \[10\] Nikkei Semiconductor Stock Index down 5.28% on Oct. 22: [EL7.AI, citing Nikkei Indexes](https://el7.ai/en/news/2026-10-23-nikkei-225-plunges-over-1700-points-as-ai-and-tech-stocks-sell-off?ref=leadlagreport.com).
- \[11\] Asian stocks slide on AI doubts; TSMC slipped 0.6%: [Investing.com via Yahoo Finance](https://finance.yahoo.com/markets/stocks/articles/asia-stocks-slide-ai-jitters-042543916.html?ref=leadlagreport.com).
- \[12\] Brent settlement of $116.72 on October 23, highest since April 29, and Adam Turnquist comment: [Reuters via Central Oregon Daily, October 23, 2026](https://www.centraloregondaily.com/news/consumer/brent-crude-jumps-to-highest-since-april-on-houthi-saudi-attacks-uae-oil-spill/article%5F76866907-3e1b-5251-8941-636163a100c4.html?ref=leadlagreport.com).
- \[13\] Japan September core inflation above 2% for the first time since December 2025; yen near 158 for much of October: [ICIS, Oct. 23, 2026](https://www.icis.com/explore/resources/news/2026/10/23/11238467/japan-sept-core-inflation-tops-central-bank-target-may-prompt-more-rate-hikes/?ref=leadlagreport.com).
- \[14\] Nikkei report: BoJ to hold at 1.25%; senior official on consecutive hikes: [Asia Economy, Oct. 23, 2026](https://www.asiae.co.kr/en/article/2026102309001937646?ref=leadlagreport.com).
- \[15\] Cross-border yen borrowing at a record 360 trillion yen as of March (Jefferies analysis of BIS data): [Reuters](https://www.reuters.com/world/asia-pacific/what-is-yen-carry-trade-2026-09-09/?ref=leadlagreport.com).
- \[16\] USD/JPY close near 156.81 on Oct. 23, 2026: [Perplexity Finance](https://www.perplexity.ai/finance/USDJPY?ref=leadlagreport.com).
- \[17\] MUFG: yen rose on risk aversion though U.S. rates are 2.5 to 2.75 points above Japan: [EconoTimes](https://econotimes.com/Yen-Rises-Despite-Dollar-s-Rate-Edge-as-AI-Jitters-Hit-Markets-1761712?ref=leadlagreport.com).
- \[18\] FOMC meeting calendar, decision on October 28: [Federal Reserve Board](https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm).
- \[19\] 2026 Monetary Policy Meeting dates, Oct. 29 to 30: [Bank of Japan](https://www.boj.or.jp/en/mopo/mpmsche%5Fminu/index.htm?ref=leadlagreport.com).
- \[20\] Standard Chartered on the BoJ: hold with a clearly hawkish tone: [Mitrade](https://www.mitrade.com/ae-en/insights/news/live-news/article-1-2187920-20261023?ref=leadlagreport.com).

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