Tech stocks led losses across most of Asia on Thursday as investors continued to unwind huge bets on the sector that have propelled markets to record highs this year. The selling was particularly sharp in Seoul, where the Kospi plunged almost seven percent at one point, with chip giants SK hynix and Samsung shedding more than eight percent. Tokyo also saw significant declines, with chipmaker Kioxia briefly losing around 14 percent.
Market Sentiment and Key Drivers
The recent run of volatility has been fuelled by concerns that the artificial intelligence boom, which has underpinned a global rally, may have run out of steam. Analysts warn that valuations have become stretched, and there are doubts about the returns on huge investments in the tech sector. Additionally, fears of rising borrowing costs have added to the market's unease.
Retail investors were also hit by margin calls on borrowed cash, exacerbating the sell-off. News that Apple was in talks to buy chips from two Chinese firms further pressured chipmakers. Stephen Innes at SPI Asset Management noted, 'Korea is now the sharper version of the broader AI unwind. The issue is that a great earnings story can still become a terrible trading vehicle when leverage, momentum and crowded positioning all decide to leave through the same exit.'
Federal Reserve's Influence and Market Reactions
Federal Reserve boss Kevin Warsh provided some support to the markets by stating that price pressures had 'come down' in recent weeks, soothing fears of an imminent interest rate hike. His comments at the European Central Bank's annual Forum on Central Banking in Sintra, Portugal, emphasized the need to get prices under control but added that pressures were easing.
Warsh's remarks come ahead of the release of US jobs data, which could play a significant role in the bank's rate decision-making. Data from payroll firm ADP showed the private sector added 98,000 jobs last month, less than the expected 120,000. This data, combined with Warsh's comments, provided a mixed signal to investors.
Broader Market Impact and Future Outlook
While most Asian markets experienced declines, Hong Kong, Singapore, Manila, and Jakarta saw gains. Oil prices also fell more than one percent as the United States and Iran began talks to end their conflict and keep the Strait of Hormuz open permanently. However, Charu Chanana at Saxo Markets warned that lower oil prices should not be confused with the end of the inflation problem, as other factors like wage growth and supply-chain shifts could keep inflation elevated.
The recent market movements highlight the fragile state of investor confidence in the tech sector and the broader economy. As markets continue to react to economic data and geopolitical developments, the coming weeks will be crucial in determining the next steps for both investors and central banks.
