Scary Developments for Investors in Asian Markets

Asian Markets Shock Investors

Asian markets have shocked investors who have been riding the wave of the artificial intelligence (AI) boom for most of the year. This month, foreign investors withdrew around $4.6 billion from Taiwanese and South Korean stocks. This pace signals the sharpest decline since March and April. The tightening of valuations, a decrease in risk appetite, and the uncertainty surrounding the expected Federal Reserve interest rate cut in December lie behind this movement.

Japan has also been negatively affected, witnessing a $2.3 billion worth of local stock sales. When futures are taken into account, a total of around $7.3 billion in sales has occurred. This indicates that the pullback is widely spread.

For several months, investors viewed Asia's AI suppliers as a booming trading arena. However, this confidence seems to have softened. Inconsistencies in expectations and questions arising from cyclical deals in trading activities have sparked discussions about revenues and valuations preceding their fundamentals. South Korea's KOSPI index, which had risen by 84% from April to early November, is now pulling back from its highs. Taiwan's Taiex index has also given back some of its recent gains, signaling that the once unstoppable momentum is no longer a given.

China is further exacerbating this situation. While there is no current data on foreign flows, the Hang Seng Tech Index has deepened into technical correction territory. Disappointments from Tencent and Baidu are adding to this situation. After Tencent lowered its capital expenditure forecast for 2025, its shares declined, and Baidu's launch of its new AI model also failed to meet expectations. According to Van Eck strategist Anna Wu, this phase could be a standard profit-taking maneuver or a short-term sentiment pullback. However, it reminds us that in periods of very high expectations, even the smallest tonal shift can shake a market that prices perfection.