Asian stocks were poised to extend losses following a tech-led sell-off on Wall Street, fueling concerns that the AI-driven equity rally might be overextended. Japan and South Korea's equity-index futures pointed lower, though Hong Kong contracts showed modest gains. This downturn occurred after the Nasdaq 100 tumbled 3.3% and the S&P 500 fell 1.4% on Tuesday. A key semiconductor gauge, which had more than doubled from its war-driven lows, slumped about 8%. The risk-off sentiment led investors to safer assets like Treasuries and haven currencies such as the Japanese yen and Swiss franc.
The broader market pullback saw South Korea's Kospi Index drop 10%, triggering a circuit breaker. Major AI-linked companies, SK Hynix Inc. and Samsung Electronics Co., each fell by over 10%. Memory-chip stocks, which have been significant drivers of equity gains this year, are expected to remain volatile, especially after a local media report indicated SK Hynix is shifting its focus to cheaper products. Analysts like Jonathan Krinsky of BTIG LLC anticipate a further 10% to 15% downside for the semiconductor group, while Chris Low of FHN Financial noted that the risk-off trade reflects fears of AI exuberance being overdone.
Attention is now focused on Micron Technology Inc.'s earnings report, expected on Wednesday, which will serve as a crucial test for the continued demand in AI infrastructure. Micron shares dropped 13% on Tuesday. Meanwhile, oil prices declined as tanker traffic through the Strait of Hormuz became more visible following an interim peace agreement between the US and Iran. In the fixed-income market, Treasuries rallied as the equity sell-off and falling oil prices lessened pressure on the Federal Reserve to raise interest rates, with swaps pricing in slightly lower odds of multiple rate hikes over the next year.
