Asian markets closed mostly lower on Tuesday, with a significant downturn in technology stocks due to increasing worries about the financial sustainability and competitive landscape of the AI sector. South Korea's Kospi was particularly hard hit, plummeting 11.63% to 7,389.89 and triggering a circuit breaker. SK Hynix and Samsung Electronics, prominent South Korean chipmakers, saw their shares sink 14.7% and over 13% respectively, having shed nearly 50% of their market value since their recent all-time highs.
Japan's Nikkei 225 also suffered, tumbling 3.95% to 62,364.92, while the Topix fell 2.52% to 3,963.59. Analysts like Patrick Munnelly of TickMill noted that countries heavily leveraged to semiconductors and AI infrastructure, which were strong performers earlier in the year, have now become vulnerable. The selloff in Asian tech followed a 2.2% drop in the Philadelphia Semiconductor index on Monday, as investors questioned the "circularity, financing burden and competitive assumptions behind the AI capex boom."
Despite the tech sector's struggles, oil prices provided some relief to markets, with Brent crude futures falling 4.8% to $84.09 a barrel. This decline eased some inflation anxieties ahead of the U.S. Federal Reserve's monetary policy decision expected at the conclusion of its two-day meeting on Wednesday. Markets have priced in about a 38% chance of a 25 basis point rate hike by the Fed. The Dow Jones Industrial Average added 1%, and the S&P 500 rose 0.2% on Monday, while the Nasdaq Composite was down 0.2%. Overall sentiment remains fragile, with investors shifting focus from "AI spending is good" to a more critical view of whether "AI spending needs to earn its cost of capital."
