Asian stocks extended their selloff on Wednesday, with South Korea's KOSPI index dropping nearly 6% today, after a more than 10% decline on Tuesday, reaching its lowest level since early April. This rout is attributed to escalating anxiety around Artificial Intelligence (AI) valuations and doubts about whether the substantial investments in AI will yield expected returns. Taiwan stocks saw a 5% decrease, and Japan's Nikkei slid 2.6%, further deepening the regional slump. The MSCI All Country World Price index also dropped 1.1%, reaching its lowest point since June 11.
Adding to the market volatility, shares of SK Hynix, a key chipmaker, tumbled 9.6% despite reporting a sixfold increase in quarterly profit. This performance, while strong, fell short of the high expectations set by investors. In response to the market instability, South Korea's finance ministry announced new restrictions on single-stock leveraged exchange-traded funds (ETFs), including a cap that will limit individual investments in such products to 20% of their total investment assets.
Meanwhile, the U.S. Federal Reserve decided to hold interest rates steady, keeping them in the 3.50%-3.75% range. This decision was largely anticipated, though three out of 12 members of the Federal Open Market Committee dissented. Traders had priced in a 33% chance of a rate hike prior to the announcement. Following the Fed's decision, U.S. stocks extended losses, with the Dow Jones Industrial Average falling 2.2% to 51,594.86, the S&P 500 dropping 1.5% to 7,316.39, and the Nasdaq Composite down 1.7% to 24,442.94. Interest-rate sensitive two-year Treasury yields dropped, and the dollar slipped, while oil prices surged amid renewed attacks in the Middle East, putting inflation pressures back in the spotlight.
