* S.Korea's KOSPI down 22% month-to-date

* Investors eye Bank Indonesia meeting on Wednesday

* Thai baht falls to 33.70 per dollar

By Shivangi Lahiri

July 20 (Reuters) - Emerging Asian equities diverged on

Monday, as a 5% slide in South Korean shares underscored a

deepening unwind in the AI trade, while an escalating war in the

Gulf drove oil prices higher and revived inflation concerns

across the region.

Shares in Seoul fell as much as 5.1% as trading

resumed after a market holiday on Friday. The benchmark KOSPI

gauge has slumped more than 22% for the month so far, confirming

a bear market.

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

paring gains, while the MSCI EM Asia equities index

edged 0.5% lower.

The South Korean and Taiwanese benchmark gauges together

account for about 60% of the MSCI equities 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, while noting that Taiwan's ecosystem is

lesser exposed than South Korea.

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

allocation, from "overweight" since July 2025, citing volatile

trading conditions even as the market continues to rank strongly

in their fundamentals-based models.

Markets took a further hit on Friday after Chinese AI firm

Moonshot unveiled Kimi K3, an open-weight model it said nears

Anthropic's frontier Fable system, raising the stakes for this

week's earnings from Alphabet, Intel ( INTC ) and

Tesla.

"This inevitably revived intense, DeepSeek-esque worries

about a race to the bottom on model compute undercutting

staggering investments by hyperscalers," said Vishnu Varathan,

head of economics and strategy at Mizuho Bank.

In Southeast Asia, stocks in Jakarta rose as much as

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

Manila clocked similar gains to hit their highest level

since March 3.

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 later in the session.

Markets also turn their focus to Bank Indonesia's meeting

due later in the week, with the central bank expected to raise

rates again to stabilize the rupiah.

Elsewhere, the Thai baht weakened to as much as

33.70 per dollar, while Taiwan's dollar fell to as much

as 32.436 per dollar, with both currencies hitting their lowest

levels since late April.

The Thai baht has already been weighed down by low carry

returns and a weakening current account, analysts at Maybank

said, adding that they expect the currency to remain among the

region's weaker performers this month given the lack of

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

** Malaysia's June exports rise 45.4% y/y, below forecast

Asia stock indexes and currencies at 0416 GMT

COUNTRY FX RIC FX FX YTD % INDEX STOCKS STOCKS

DAILY DAILY YTD %

% %

Japan - -3.52 - 23.75

China India Indonesia -0.47 -7.23 0.85 -27.97

Malaysia +0.05 -0.78 -0.25 2.80

Philippin -0.22 -4.67 0.98 6.84

es

S.Korea Singapore +0.08 -0.36 0.06 18.65

Taiwan Thailand -0.10 -6.50 -0.12 29.97