Emerging-market stocks plummeted to their lowest levels since April, largely due to a sharp decline in semiconductor shares. The MSCI Emerging Market Index fell 2.4%, marking its most substantial drop in 10 months. This widespread sell-off was fueled by deepening concerns about excessive capital expenditure in the AI sector, potential oversupply, and the impact of increasing competition from China in chip manufacturing. Notably, South Korea's Kospi index, a key indicator for AI investments, plunged almost 11%, triggering a circuit breaker and reflecting the severity of investor anxiety.
Several factors contributed to the chip sector's woes. Nvidia's newly announced deals, totaling over $750 billion, sparked worries about artificial demand for AI infrastructure. Simultaneously, a report from The Information revealed that a Chinese state-backed company successfully began mass-producing immersion deep ultraviolet lithography machines, a technology previously dominated by Dutch firm ASML. This technological breakthrough by China, coupled with existing competition threats, severely impacted shares of major chip equipment makers like Nikon Corp. and Tokyo Electron Ltd., both sliding more than 9%. Analysts like Hebe Chen from Vantage Global Prime highlighted that investors are increasingly concerned about spending, returns, and valuations within the AI sector.
The repercussions were felt across Asian markets, with significant losses for prominent chipmakers. South Korea's SK Hynix Inc. slumped by as much as 14.7%, and Samsung Electronics Co. fell over 13%. In Japan, Tokyo's Nikkei index dropped 4%, with Kioxia, Advantest, and Tokyo Electron shares tumbling significantly, Kioxia by 18%. Taiwan's market also saw a more than 4% decline, impacting heavyweight TSMC. The Philadelphia Semiconductor Sector index, which tracks the top 30 US-traded chip companies, fell around 4.5%, indicating a broader global concern.
Adding to the market volatility, oil prices continued their decline, with Brent crude extending its drop to $87.55 a barrel. Despite the fall in oil prices, which typically offers some relief, bonds saw limited gains, and investors remained nervous about potential US rate hikes, with a 38% chance priced in for a 25-basis point increase by the Federal Reserve. This combination of an AI-driven tech rout, increased competition, and broader economic uncertainties created a challenging environment for emerging markets, with analysts like Kyle Rodda from Capital.com emphasizing how companies embodying high capital expenditure in AI are weighing heavily on market sentiment due to fears of eroding returns.
While the Bloomberg article discussing emerging markets specifically wasn't accessible at the provided URL, the available web search results provide comprehensive coverage of the underlying chip rout and its impact across Asian markets, which are significant components of emerging market indices. The sentiment captured reflects increased investor skepticism regarding the sustainability and profitability of the AI boom, alongside growing geopolitical and competitive pressures in the semiconductor industry.
