Asian stocks are set to follow a downturn in US markets, largely due to a significant sell-off in semiconductor stocks. This comes as investors express increased skepticism about whether the artificial intelligence rally can maintain its momentum given current high valuations. The concern intensified as a gauge of Asian chipmakers tumbled 3.2%, heading for its lowest close in a month, with South Korea's Kospi Index slumping 6% and Japan's Nikkei 225 Stock Average dropping 3%. This regional retreat pulled MSCI's Asia Pacific equities gauge down by 1.2%, with bellwethers like SK Hynix Inc. and Samsung Electronics Co. leading losses.
The decline in Asian markets, particularly in South Korea, is also attributed to profit-taking after the Kospi surged over 60% this year. Suresh Tantia, Asia Pacific strategist at UBS Global Wealth Management, described it as a "mid-cycle digestion" which is natural after such a substantial rally. Additionally, the head of Korea’s Financial Services Commission announced upcoming measures regarding leveraged exchange-traded funds tied to Samsung Electronics and SK Hynix shares, which have contributed to market volatility.
Despite the broader market retreat, sentiment showed some stabilization later in the trading day. Taiwan Semiconductor Manufacturing Co. reported earnings that beat estimates, providing a sign of sustained AI demand. However, the overall mood remains cautious as the earnings season continues to test lofty chip-sector valuations. While softer US inflation data this week eased concerns about immediate Federal Reserve rate hikes, escalating conflicts in the Middle East have reignited fears over energy supplies, with Brent crude declining.
