Asian stock markets, particularly in Seoul and Tokyo, experienced a substantial rout in tech stocks on Tuesday, with the Kospi index plummeting 10.8% to close at 6,023.66 and the Nikkei tanking 4%. This downturn was fueled by concerns regarding the vast sums invested in Artificial Intelligence (AI) and questions about the actual return on these investments, alongside extended valuations that had raised eyebrows among investors. Stephen Innes of SPI Asset Management noted that while the immediate fundamentals of semiconductors haven't collapsed, the market's willingness to capitalize on promises at almost any price has changed.
Major chip manufacturers bore the brunt of the selloff. Seoul-listed SK Hynix saw a dramatic 14.7% decline, and Samsung Electronics fell by more than 13%. These companies have lost almost 50% of their value since reaching all-time highs last month. In Tokyo, Kioxia shed over 18%, Advantest dived 10%, and Tokyo Electron fell 11%. Taiwan's market also suffered, with market heavyweight TSMC taking a significant hit, contributing to a 4% decline in the overall index. The Philadelphia Semiconductor Index had already dropped 2% on Wall Street the previous day, setting a bleak tone.
The market's behavior was described as a "flywheel" effect, where rising equity values encouraged more spending, validating higher earnings expectations and pushing valuations even higher. However, this dynamic is now reversing, throwing investors off. Despite the downturn, demand for high-bandwidth memory remains strong, and hyperscalers are reportedly still spending, with major technology companies not yet abandoning their capital expenditure plans. Traders are now awaiting crucial earnings reports this week from companies like SK Hynix, Samsung, Kioxia, Microsoft, Meta, Apple, and Amazon for further clarity.
Beyond Seoul and Tokyo, other regional markets also saw declines, including Shanghai, Singapore, Manila, Mumbai, and Jakarta. However, Hong Kong, Sydney, and Wellington managed to record gains. In other regional news, the Monetary Authority of Singapore (MAS) surprised with a second consecutive policy tightening, increasing the slope of its exchange-rate band, which strengthened the Singapore dollar. Alongside this, investors are closely watching interest rate decisions from the U.S. Federal Reserve, the Bank of Japan, and the Bank of England amidst this volatile market environment.
