Asian stock markets are set to continue their decline after a substantial selloff in US technology shares triggered by concerns that the AI-driven equity rally has gone too far. Futures for equity indexes in Japan and South Korea indicated lower openings, while Hong Kong contracts showed slight gains. This follows a Tuesday session where the tech-heavy Nasdaq 100 plunged 3.3% and the S&P 500 fell 1.4%. A key semiconductor index, which had more than doubled from its war-related lows, dropped about 8%.
The decline in Asian markets comes as investors rotate out of this year's top-performing technology stocks while also monitoring developments in US-Iran peace talks. MSCI's gauge of regional equities decreased over 2%, after reaching a record high on Monday. South Korea's Kospi experienced a significant drop of more than 6% due to renewed worries that the rally in heavyweight chip stocks has become overextended. The sub-gauge of Asian tech stocks ended an eight-day winning streak.
Attention is now focused on memory chipmaker Micron Technology's quarterly results, scheduled for Wednesday. These results are expected to be a critical indicator of whether the spending on artificial intelligence infrastructure can sustain the current rally in AI-related stocks and the broader tech sector. Micron's shares have surged over 300% this year. The market instability is exacerbated by concerns from analysts like David Savage of Macro Squawk regarding the prudence of "unprecedented AI infrastructure investment from US hyper-scalers."
The AI trade has been a crucial driver for global equity markets this year, helping them overcome challenges such as the Middle East conflict and achieve successive record highs. The S&P 500 Index saw a 14% increase this quarter up to Monday, fueled by expectations of a peace deal and strong corporate earnings. However, this trails the 26% surge in the MSCI Asia Pacific Index, with benchmarks in Taiwan, South Korea, and Japan's Nikkei 225 all soaring at least 40%. The current pullback is seen by Billy Management in Sydney as hyper-scalers leading the decline due to concerns about AI capital expenditure and negative cash flows.
