Stock Losses Deepen on AI Trade, Treasuries Rally: Markets Wrap
(Bloomberg) — Global stock losses deepened as renewed concerns about the artificial intelligence trade pushed investors out of one of the market’s hottest corners this year. Treasuries rallied on haven demand.
MSCI Inc.’s Asia Pacific equities gauge dropped 1.6%, set for its lowest close since August. The Kospi Index in South Korea — a key barometer of the AI trade — tumbled 6% as concerns over Chinese competition spurred investors to rotate out of the tech sector. SK Hynix Inc. sank 10% and Samsung Electronics Co. about 8%.
US and European equity-index futures also retreated, pointing to further pressure on global shares. The losses in Asia followed a Wall Street selloff that left the Nasdaq 100 Index at this month’s low and a US gauge of chip stocks at its weakest since mid-September.
Declines in stocks and falling oil prices lifted bonds and European bond futures. The yield on the benchmark Treasury 10-year note fell four basis points to 5.20% as cash trading resumed after a holiday. Brent crude dropped 0.9% to about $105.70 a barrel.
With the US reporting season set to begin, enthusiasm for AI stocks has faded as investors question whether heavy spending on the technology will generate sufficient returns given high borrowing costs. After a four-year bull run that lifted the S&P 500 Index nearly 120% from its 2022 low, stretched valuations have left equities increasingly vulnerable to disappointing results.
“Sentiment appears as negative as we’ve seen for some time, buyers are stepping aside, and sellers are finding relatively little resistance in pushing prices lower,” Chris Weston, head of research at Pepperstone, wrote in a note. “The bears have the upper hand across much of the AI trade.”
Warnings are mounting around the AI trade, with Broadcom Inc. chief executive officer Hock Tan the latest to flag concerns.
The AI boom has attracted investors whose strategies resemble those of gamblers, he said on Monday, suggesting some of them have little understanding of what they’re betting on.
What Bloomberg’s Strategists Say…
“Asian equities surprised earlier in the year by soaring despite the energy shocks delivered by the Iran war. As the conflict grinds on and oil prices move higher, the doubts swirling around the tech boom threaten to bring the region’s leading lights back down to the rest of the pack.”
– Garfield Reynolds, Markets Live team leader. For more on the analysis, click here.
Last week, billionaire Ray Dalio warned that AI is a “classic bubble” that is nearing a bursting point thanks to rising interest rates and the need to turn wealth into cash.
Rising competition is also weighing on the sector. A report said Chinese rival CXMT made progress on a memory-chip design capable of storing more data. Meanwhile, Meta Platforms Inc. unveiled its Muse Wonder AI model.
Investors also remain concerned at the billions technology companies have raised this year to fund the AI buildout.
“There is a concern the issuance is crowding out all different types of other bond issuance and causing a fair amount of, frankly, upset stomachs around the bond market,” April LaRusse, co-head of global client portfolio management at BNY Investments, said on Bloomberg Television.
On Tuesday, Tencent Holdings Ltd. began marketing bonds in an offering that may raise around $5 billion to support its escalating investments in AI.
Meanwhile, a Bloomberg gauge of the dollar edged lower, snapping a four-day gain.
The stock selloff drove investors toward bonds, lifting Treasuries across the curve. Government debt in Australia and New Zealand also advanced.
“It’s the classic risk-off move today,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “Equities under pressure and investors seeking some safety again.”
Corporate Highlights:
Sales at LVMH’s biggest division slumped as worsening economic conditions and a consumer backlash in China hit its key Louis Vuitton brand. Visa Inc. received approval to begin preparations to establish a domestic bank card clearing business in China. Microsoft Corp. is gearing up to install the latest version of its own chips in data centers, with the aim of powering its AI software using mostly homegrown hardware. Banca Monte dei Paschi di Siena SpA still supports its plan to build a larger banking group and considers Intesa Sanpaolo SpA’s improved takeover offer as not financially satisfactory. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.1% as of 6:55 a.m. London time Nasdaq 100 futures fell 0.7% The MSCI Asia Pacific Index fell 1.6% The MSCI Emerging Markets Index fell 2.3% Japan’s Topix was little changed Hong Kong’s Hang Seng was little changed The Shanghai Composite rose 0.3% Euro Stoxx 50 futures fell 0.2% Currencies
The Bloomberg Dollar Spot Index fell 0.1% The euro rose 0.2% to $1.1177 The Japanese yen rose 0.2% to 158.30 per dollar The offshore yuan was little changed at 6.6963 per dollar The British pound rose 0.1% to $1.3224 Cryptocurrencies
Bitcoin rose 0.7% to $83,582.68 Ether rose 0.4% to $2,526.58 Bonds
The yield on 10-year Treasuries declined four basis points to 5.20% Japan’s 10-year yield was unchanged at 3.005% Australia’s 10-year yield declined three basis points to 5.29% Commodities
Spot gold rose 0.5% to $4,192.15 an ounce West Texas Intermediate crude fell 1.1% to $92.75 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi, Youkyung Lee and Matthew Burgess.
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