The key facts

  • Kospi fell more than 4% in early trading, Nikkei 225 lost about 1%; SoftBank plunged more than 5%
  • Investors doubt inflated valuations and payback timelines for huge AI spending; Meta and Tesla report this week
  • Brent around $110 per barrel amid Iranian statements about control of the Strait of Hormuz

Selloff in Asian tech sector

Technology companies led heavy losses on Asian markets on Tuesday as investors ignored a rebound on Wall Street amid growing concerns about the artificial intelligence investment boom ahead of key corporate earnings reports. The brunt of the blow again fell on Seoul and Tokyo: chip giants SK hynix, Samsung and Kioxia lost value again in a sharp exit from a market that had shown frenzied growth in the first half of the year.

Doubts about valuations and returns on AI spending

Since June's record highs, traders have been questioning inflated valuations and the timelines — if any exist at all — for returns on the colossal sums companies have spent to lead the AI race. Concern is also mounting over the debt levels of some firms, as rising rates around the world are squeezing their finances.

Trading data

In early trading, South Korea's Kospi at one point fell more than 4%, with SK hynix losing more than 3% and Samsung about 1%. Tokyo's Nikkei 225 dropped about 1%: Kioxia lost almost 2%, while investor SoftBank plunged more than 5%. Taiwan's TSMC was also in the red, although the local Taiex rose slightly. Losses were also recorded in Hong Kong, Shanghai, Sydney, Singapore, Wellington and Manila. At the close, the Nikkei 225 ended down 0.6% at 64,512.35, the Kospi down 2.8% at 5,607.95, the Hang Seng down 1.1% at 23,926.81, and the Shanghai Composite down 0.2% at 3,722.56.

Contrast with Wall Street and earnings expectations

The selloff came despite a positive day on Wall Street, where the Nasdaq rose firmly thanks to shares of Amazon, Microsoft and Nvidia. The Philadelphia Semiconductor Index gained 1.6%, breaking an eight-day losing streak, according to Bloomberg. Market attention is now focused on earnings: Meta and Tesla report this week. Analysts note that investors are expecting ever-better results to justify valuations. «The market no longer trades on headline numbers in isolation. It trades on the gap between what companies earn today and what they still have to spend to keep the AI machine running,» said Stephen Innes of SPI Asset Management. According to him, this turns the reaction to earnings reports into «gymnastics exercises with forecasts and corporate outlooks,» where even a perfectly decent quarter can be «thrown overboard» if capex, margins or the future return profile fail to clear an «almost absurdly high bar.» Chris Weston of Pepperstone added: «The market doesn't need every AI infrastructure company to succeed. But it needs confidence that the huge deployed capital will generate returns above its cost of funding. Without that confidence, rallies risk turning into opportunities to cut exposure rather than add to it.»

Oil and the Strait of Hormuz

Oil prices rose slightly: Brent held around $110 per barrel and WTI around $104, amid concerns over Iranian attacks in the Strait of Hormuz. Iran's First Vice President Mohammad Reza Aref said, according to the state agency IRNA, that Tehran must establish its control over the waterway — through which about a fifth of the world's oil and gas normally passes — to ensure its security. He said friendly countries could enjoy safe passage, but the United States «are now the cause of the current situation and must pay the price.» These statements erased signs that oil supplies were close to pre-war levels. At the close, WTI rose 0.2% to $103.82 and Brent rose 0.2% to $109.74.

Currencies and Europe

On the currency market, the euro held steady against the dollar but remained under pressure: France and Italy are being shaken by violent protests over the cost of living, raising concerns about their economies and pushing up government bond yields. Stock markets in both countries fell more than 1% on Monday. The euro rose to $1.1218 from $1.1211, the pound to $1.3316 from $1.3304, and the dollar/yen to 158.58 from 158.55. The Dow in New York closed down 0.1% at 51,966.03, and the FTSE 100 in London down 1.1% at 10,764.69.