Asian Stocks Drop as Kospi Hit by Selloff in Chips: Markets Wrap

(Bloomberg) — Semiconductor stocks tumbled across Asia, dragging regional equities lower, as investors became more skeptical that the artificial intelligence-driven rally can withstand lofty valuations. Oil climbed.

South Korea’s Kospi index — a bellwether for AI investments — slumped as much as 7.3%, with SK Hynix Inc. and Samsung Electronics Co. leading losses ahead of a holiday in Seoul Friday. Earlier, the head of Korea’s Financial Services Commission said the country will soon announce measures regarding the controversy over leveraged ETFs linked to the chipmakers fueling volatility.

Investors remained cautious on the chip sector after the Information reported that ASML Holdings NV — a linchpin in the semiconductor supply chain — plans to raise prices. After the Dutch company boosted its annual sales forecast for the second time this year, investors will look to Taiwan Semiconductor Manufacturing Co.’s earnings later Thursday for a fresh read on the AI buildout.

Also weighing on the mood, Brent crude rose for a fourth day to near $85.50 a barrel after the US launched fresh airstrikes on Iran. The latest attacks added to concern that escalating Middle East tensions will further disrupt energy supplies.

The durability of the AI rally remains in focus as investors assess whether strong earnings can justify lofty chip-sector valuations after weeks of volatile trading following a blistering advance earlier this year. While bouts of profit-taking are typical after such gains, investors are watching closely for signs of slowing demand for AI infrastructure or weaker-than-expected guidance.

“I’ve long been concerned about this sort of speculative frenzy in the retail sector in South Korea,” John Woods, Asia CIO and head of investment solutions at Lombard Odier, said on Bloomberg Television. “I do get concerned when I see excess leverage in any market. It tends not to end well as a general rule.”

In other corners of the market, Australian and New Zealand government bonds advanced after softer-than-expected US producer price inflation for June drove a Treasuries rally on Wednesday and prompted traders to further scale back expectations for Fed rate increases.

A 3% drop in Japan’s Nikkei 225 Stock Average, alongside steep losses in South Korea, pushed MSCI’s Asia Pacific equities benchmark down 1.6%, snapping a two-day advance.

A gauge of Asian chipmakers tumbled 4%, set for its lowest close in a month.

“It is quite natural that after a 100% rally, you tend to see some sort of a digestion in the market and profit booking, and that is what we are seeing in the Korean market right now,” Suresh Tantia, Asia Pacific strategist and chief investment officer at UBS Global Wealth Management in Singapore, said on Bloomberg Television. “We are still bullish on the Korean equity market and I think this is only a mid-cycle digestion.”

What Bloomberg Strategists say…

“The market’s lukewarm reaction to ASML’s blowout report deepens a troubling trend in which stellar preliminary results from Samsung Electronics and robust sales figures from TSMC have so far failed to provide a floor for the increasingly fragile chip rally. TSMC’s earnings later today will serve as the next crucial test for the market. As Asia’s most valuable company, TSMC faces an exceptionally high bar to turn broader regional sentiment around.”

— David Savage, Macro Squawk. Click here for the full analysis.

In geopolitical news, the US-Iran interim peace deal signed around a month ago has all but collapsed over the past week as the two sides feud over control of the vital strait, through which Saudi Arabia, Qatar, the United Arab Emirates and others send most of their energy exports.

The latest attacks come as US President Donald Trump pledged to intensify the bombardment until Tehran stops attacking ships in the Strait of Hormuz and agrees to open the waterway.

While inflation reports this week eased concerns over near-term Federal Reserve rate hikes, the escalating conflict in the Persian Gulf has revived fears over energy supplies from the region.

“Energy saved the day in June, but that might become ancient history if the Strait of Hormuz doesn’t open soon,” said David Russell at TradeStation.

Corporate Highlights:

Anthropic PBC is seeking to meet with investors ahead of its potential mega-IPO, according to people familiar with the matter. Apple Inc. received long-awaited government approval to roll out Apple Intelligence in China, potentially giving it a boost in the world’s most-competitive smartphone market. Morgan Stanley’s stock traders sailed past Wall Street’s expectations to set another quarterly record, adding to the industry’s second-quarter windfall from buoyant markets and ongoing volatility. PayPal Holdings Inc. has been working with advisers to review strategic options, people familiar with the matter said, as Stripe Inc. and private equity firm Advent pursue a $50 billion-plus takeover of the fintech pioneer. Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 10:44 a.m. Tokyo time Nikkei 225 futures (OSE) fell 3.2% Japan’s Topix fell 1.1% Australia’s S&P/ASX 200 fell 0.2% Hong Kong’s Hang Seng rose 1.5% The Shanghai Composite fell 1% Euro Stoxx 50 futures fell 0.1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1467 The Japanese yen was little changed at 162.07 per dollar The offshore yuan was little changed at 6.7702 per dollar Cryptocurrencies

Bitcoin fell 0.5% to $64,583.9 Ether fell 0.3% to $1,916.5 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.56% Japan’s 10-year yield advanced 1.5 basis points to 2.700% Australia’s 10-year yield declined one basis point to 4.89% Commodities

West Texas Intermediate crude rose 0.7% to $80.13 a barrel Spot gold fell 0.5% to $4,041.59 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Cameron Crise and Stephen Kirkland.

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