Asian Markets are Affected by AI Bubble

On Wednesday, a sharp wave of sales occurred in Asia, led by technology companies. Investors are increasingly concerned about the AI bubble amid record valuations recorded this year.

Global markets have risen this year due to a strong cash flow heading towards US giants like Nvidia, Amazon, and Apple, as well as Asian firms like Samsung and Alibaba. However, despite strong earnings reports in recent quarters, investors have started questioning the logic of chasing continuously rising prices. Cash is essentially flowing into a few major names, while factors supporting these earnings included a decrease in US trade tensions and expectations that the Federal Reserve would continue to cut interest rates in the new year.

However, last week's warning from the central bank about no guarantee of another cut in December rattled market sentiment. After an uncertain start to the week, Wall Street declined on Tuesday; the technology-focused Nasdaq index fell by more than 2%, while the S&P 500 index also dropped by more than 1%. The US software company Palantir lost 8.0% of its value, even though it reported a 63% increase in revenue and profit.

Asia took this situation over in the morning hours, with Seoul and Tokyo being the most affected cities. Seoul quickly followed with losses of around 7% for semiconductor giants Samsung and SK Hynix, at one point declining by 6%. Daishin Securities analyst Chung Hae-chang described this decline as a “correction of an overheated market.” He also warned that Seoul's Kospi index could drop another 5% and that SK Hynix and Samsung could see proportional corrections in their previous gains.

Tokyo fell more than 4% following a 14% drop in technology investment giant SoftBank and a more than 2% decline in Sony. However, Nintendo briefly rose more than 10% after upgrading its annual profit forecast and the gaming company's Switch 2 console.

Meanwhile, Taiwan also experienced a decline of over 2%, with chipmaker TSMC losing 3%. Significant losses were also observed in cities like Hong Kong, Shanghai, Singapore, Sydney, Wellington, Manila, and Jakarta. Chris Weston from Pepperstone stated, “There is a general red sea in the markets, presenting a gloomy and pessimistic reflection of this risk.”

He noted that a transition from lower-quality stocks to higher-quality ones has occurred, resulting in a negative spillover in US stock indices. Currently, investors are starting to pull back from winners to secure their gains.

Mike Gitlin, President and CEO of Capital Group, expressed that while earnings are strong, valuations are challenging. These comments came at a financial summit organized by the Hong Kong Monetary Authority, alongside warnings from other business leaders like Ted Pick, Managing Director of Morgan Stanley, and David Solomon of Goldman Sachs about a significant correction.

Charu Chanana from Saxo Markets noted that two issues are reverberating in portfolios. “Those who have rallied since the beginning of 2023 have made significant gains and are questioning whether it's time to take profits. Meanwhile, those on the sidelines feel the fear of missing out and are wondering whether they have missed the best entry point.”

The uncertainty in the markets has also reflected in the crypto universe; Bitcoin fell below $100,000 after first exceeding $126,000 in June.

Tokyo - Nikkei 225: down 4.7%, 49,104.05 (close)
Hong Kong - Hang Seng Index: down 1.1%, 25,676.11
Shanghai - Composite: down 0.4%, 3,943.45
Euro/dollar: down to 1.1487 from 1.1479.
Pound/dollar: down to 1.3017 from 1.3019.
Dollar/yen: down to 153.17 from 153.66.
Euro/pound: up to 88.25 from 88.17.
West Texas Intermediate: down to $60.13, a decrease of 0.7%.
Brent North Sea Crude: down to $64.05, a decrease of 0.6%.
New York - Dow: down 0.5%, 47,085.24 (close)
London - FTSE 100: up 0.1%, 9,714.96 (close)