Asian stocks slumped significantly on Tuesday, June 23, with MSCI's gauge of regional equities declining more than 2% after a record high close on Monday. This downturn was largely driven by investors rotating out of this year's best-performing technology shares, coinciding with a slide in megacap tech stocks and rising bond yields that had previously pulled the S&P 500 down 0.4% on Monday. The sell-off intensified in Asia, triggered by concerns over the sustainability of the artificial intelligence rally.
The South Korean Kospi index plunged 10%, leading the regional rout and marking its biggest daily drop since March 4. This severe decline triggered an automatic 20-minute trading halt. Key South Korean chipmakers, Samsung Electronics Co. and SK Hynix, each shed over 12%, wiping out billions in market value. The two chipmakers now account for more than half of the Kospi's total market value, contributing to its volatility. Japan's Nikkei 225 also saw a significant drop of 3.6%, with Softbank sinking 15%, while Hong Kong's Hang Seng Index dropped 1.8%, and the Shanghai Composite Index retreated 1.4%.
The global tech sell-off extended from Wall Street, where the S&P 500 declined 1.1% and the tech-heavy Nasdaq 100 dropped 2.5% on Tuesday. Nvidia Corp. and Micron Technology Inc. were among the biggest drags on the S&P 500, with Micron Technology dropping 13% and Marvell Technology sinking 9%. This market correction is seen as a test of the AI-driven rally, which has been a crucial pillar for global equity markets this year, helping world stocks achieve successive record highs. Analysts, like David Savage from Macro Squawk, highlighted near-term risks for regional chip stocks, including an unstable market structure and investor concerns about the prudence of unprecedented AI infrastructure investment from US hyper-scalers.
The market volatility in South Korea was exacerbated by high retail investor engagement and concerns about leveraged single security ETFs tied to chip stocks. Margin debt in South Korea reached a record high in June, prompting regulators to caution against leverage use. While the Nasdaq is still up 10% this year despite recent declines, the focus has shifted from geopolitical events like the Middle East conflict to the sustainability of tech spending amid rising global interest rates. Attention is now turning to memory chipmaker Micron Technology's quarterly results on Wednesday as a critical indicator of whether AI spending can maintain its rally.
