Key Points
- Chip stocks lead regional market decline
- TSMC earnings fail to revive sentiment
- Oil remains elevated on Middle East tensions
ISLAMABAD: Asian shares slumped on Thursday as investors dumped semiconductor stocks amid mounting concerns over stretched artificial intelligence (AI) valuations, overshadowing support from softer US inflation data that boosted global bond markets.
South Korea’s Kospi plunged more than 6 per cent, marking one of its sharpest declines in months, while Japan’s Nikkei 225 fell about 3 per cent. Taiwan’s benchmark index also retreated as investors took profits from technology stocks that have surged over the past year on expectations of booming demand for new technology infrastructure.
The sell-off came despite strong results from Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker.
The company reported a roughly 77 per cent jump in quarterly profit, driven by robust demand for advanced semiconductors.
However, the earnings failed to revive investor appetite for the broader chip sector, highlighting concerns that expectations may have run ahead of fundamentals.
AI valuation fears
Analysts cited by Bloomberg, the Financial Times and the Wall Street Journal said investors are increasingly questioning whether massive spending on tech infrastructure can continue to justify record-high valuations across the technology sector.
The concerns were amplified after Dutch semiconductor equipment maker ASML issued an outlook that, although positive, fell short of investors’ elevated expectations.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell sharply, as technology stocks led losses across regional markets.
Hong Kong’s Hang Seng Index bucked the trend, supported by gains in major Chinese technology firms, while mainland Chinese shares traded largely unchanged.
The weakness in equities contrasted with stronger performance in bond markets after fresh US producer price data reinforced signs that inflationary pressures are easing.
The figures followed softer-than-expected US consumer inflation data earlier this week, strengthening expectations that the Federal Reserve may not need to raise interest rates in the near term.
US Treasury yields edged lower as investors increased exposure to government bonds.
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Bloomberg reported that markets have scaled back expectations of additional monetary tightening, with traders increasingly betting that inflation is moving closer to the US central bank’s target.
The softer inflation outlook also weighed on the US dollar against major currencies. However, analysts cautioned that geopolitical risks and elevated energy prices could still complicate the path towards lower inflation.
Oil prices remained near multi-month highs as tensions between the United States and Iran continued to fuel concerns over potential disruptions to global energy supplies.
Brent crude traded around $85 a barrel, maintaining gains of about 18 per cent since the latest exchange of military strikes began and remaining more than 12 per cent higher than levels seen a week ago.
Financial Times analysts noted that sustained increases in energy prices could add to transportation and manufacturing costs globally, potentially slowing the pace of monetary easing expected by investors.
Investors are now awaiting US retail sales data and a fresh round of corporate earnings reports for further clues on the health of the global economy and the durability of the tech-driven investment boom.
The latest market turbulence comes after a remarkable rally in global technology stocks driven largely by enthusiasm surrounding chips and robotics.
Over the past 18 months, investors have poured billions of dollars into companies linked to chips, cloud computing and data centres.
The rapid rise in valuations has prompted growing debate among analysts over whether earnings growth can continue to match investor expectations.
Looking ahead, markets are likely to remain highly sensitive to corporate earnings, economic data and geopolitical developments.
Investors will closely watch upcoming results from major technology firms for evidence that tech-related spending continues to translate into revenue growth. At the same time, any further escalation in the Middle East conflict could keep energy prices elevated.
Cooling inflation supported bonds, but technology valuations remained the markets’ biggest concern.
