Emerging market equities concluded their worst week in over three months, with the MSCI Asia-Pacific shares outside Japan index falling 3.8% on Friday and registering a weekly loss of 5.4%. This broad decline was spurred by a significant tech rout, as investors worried that recent surges in share prices, particularly in the AI sector, had become inflated. The sell-off saw South Korea's Kospi plummet 8.2%, triggering a 20-minute trading halt, and Japan's Nikkei slump 5%. Despite the weekly and daily drops, the quarter still saw substantial gains, with Kospi up 62% and Nikkei up 34%.
The decline was directly influenced by Apple's decision to raise prices for iPads and MacBooks due to soaring costs of memory and storage chips, which erased about $250 billion from its market value. Microsoft followed suit, increasing prices for its Xbox gaming consoles by up to $150. These price hikes raised concerns that higher component costs could impact sales and, subsequently, demand for computer chips, creating a "broader ecosystem headwind" according to Charu Chanana, chief investment strategist at Saxo.
Analysts noted that the market's caution stems from rising input costs, increased capital expenditure, and growing funding demands for AI infrastructure. Investors are becoming more selective about their AI exposure, seeking companies that can justify their high valuations. The high cost of commercializing AI tools is being passed on to consumers, prompting questions about whether demand can match the significant investment in AI and if current tech stock valuations are realistic. This profit-taking and reassessment of tech valuations contributed to the broad market downturn across Asia, including Taiwan and mainland China, which also saw sharp declines.
