* Taiwan shares erase gains, close down 0.5%

* Jakarta stocks hit mid-June high

* Bank Indonesia expected to raise rates on Wednesday

(Updates post afternoon trade)

By Shivangi Lahiri

July 20 (Reuters) - Most emerging Asian equities lost ground

on Monday, led by a 5% drop in South Korean shares as the AI

trade unravelled further, while a widening Gulf conflict pushed

oil prices higher and rekindled inflation worries across the

region.

Seoul shares closed down 4.5% after sliding as much

as 5.1% as markets reopened after Friday's holiday, taking the

benchmark KOSPI's losses for the month to more than 22% and

pushing it firmly into bear-market territory.

Taiwan's tech-heavy index rose as much as 1% before

erasing gains to close down 0.5%.

The MSCI EM Asia equities index slipped to

its lowest since early May in the session. The South Korean and

Taiwanese benchmark gauges together account for about 60% of the

index.

"Investors now are reassessing the sustainability of AI

capex demand in the longer term, and Korea, which produces AI

memory chips for data centres, are more sensitive to changes in

market sentiment," said Kelvin Lam, senior China economist at

Pantheon Macroeconomics.

Citi analysts cut Korea to "neutral" in their EM country

allocation from the "overweight" rating the country has had

since July 2025, citing volatile trading conditions even as the

market continues to rank strongly in their fundamentals-based

models.

Jason Lui, head of APAC equity derivative strategy at BNP

Paribas, said the latest moves suggested investors may be

unwinding a once-popular "long North Asia, short South Asia"

strategy, as concerns over crowded AI exposure prompt a

reassessment of regional positioning.

It has brought renewed attention to markets such as India,

Indonesia and China, though Lui cautioned the shift may reflect

defensive repositioning rather than a durable rotation away from

North Asian technology plays.

In Southeast Asia, stocks in Jakarta rose as much as

1.2% to their highest point since mid-June, and stocks in Manila

clocked similar gains to hit their highest level since

March 3.

India's equities were down around 0.7%.

Among currencies in the region, the Indonesian rupiah

weakened to 17,991 against the dollar at open, before

strengthening to as much as 17,960.

Markets are also turning their attention to Bank Indonesia's

policy meeting later this week, where the central bank is

expected to raise rates for a fourth time in an effort to

stabilize the rupiah.

The Thai baht weakened to as much as 33.715 per

dollar, hitting its lowest since late April 2025.

The currency has been pressured by low carry and a weakening

current account, Maybank analysts said, adding they expect it to

remain among the region's weaker performers this month with few

supportive catalysts. The baht has fallen 1.2% in July so far.

HIGHLIGHTS:

** Japan markets closed for a public holiday

** Yield on Indonesia's 10-year bonds unchanged

at 7.267%

** China leaves benchmark lending rates unchanged for 14th

consecutive month in July

** Indonesian parliament panel gives go-ahead to financial

centres plan

Asia stock indexes and currencies at 0650 GMT

COUNTRY FX RIC FX FX YTD INDEX STOCKS STOCKS

DAILY % % DAILY % YTD %

Japan - -3.52 China >

India >

Indonesia -0.42 -7.18 Malaysia +0.02 -0.81 Philippin -0.20 -4.65 0.82 6.66

es

S.Korea >

Singapore +0.05 -0.40 -0.29 18.24

Taiwan >

Thailand -0.15 -6.54