Asian stock markets experienced a sharp decline on Friday, dragged down by an intensifying global sell-off in technology shares, with major indices in Japan and Taiwan falling by as much as 6%.
The Nikkei 225 index officially entered correction territory, having fallen more than 10% from its record closing high set on June 25th.
Takamasa Ikeda, Senior Portfolio Manager at GCI Asset Management in Tokyo, noted the Nikkei's high correlation with the Philadelphia Semiconductor Index (SOX). He stated that the SOX's previous unsustainable gains have now led to a correction, which was anticipated by the market but arrived earlier than expected.
The market is now questioning whether the massive capital expenditures by major hyperscale cloud providers will deliver commensurate returns, especially as much of this investment is funded by highly leveraged loans from banks and private credit institutions.
Christopher Forbes, Head of Asia Pacific and Middle East at CMC Markets in Singapore, commented that while tech company earnings themselves are not poor, stock prices had already priced in all the positive news. He pointed to SpaceX's stock price, which has fallen below its issue price, as a key barometer of current market sentiment.
He has not yet observed signs of panic selling, noting that while funds have flowed into gold and silver for safety, these metals themselves are also declining, meaning the safe-haven trade is not profitable. The reality, he suggests, is that persistently rising global U.S. Treasury yields are the core catalyst for the broad market sell-off.
John Javeus, Senior Economist at SEB in Stockholm, attributed the sell-off to a confluence of factors: profit-taking in numerous AI-related stocks combined with recurring market fears of an investment bubble in the AI sector. The disappointing market debut of SpaceX has further intensified investor anxiety.
Kei Okamura, Portfolio Manager at Neuberger Berman in Tokyo, identified a shift in Federal Reserve policy as the trigger. Hawkish comments from Kevin Warsh led markets to anticipate tighter monetary policy, prompting a concentrated sell-off in tech holdings that cascaded into a stampede.
The selling pressure intensified, initially hitting industry leaders like SK Hynix and Samsung before spreading panic across the entire sector. The Nikkei's poor performance, with signs of further weakness, can accurately be described as a "full-scale rout," with the downturn affecting the entire market.
Fabian Yap, Market Analyst at IG Group in Sydney, observed that investors are now focused not just on whether revenue growth can accelerate, but on whether companies can meet earnings expectations while maintaining healthy balance sheets.
Retail investors who heavily leveraged their positions to participate in the AI rally are now facing concentrated deleveraging, which is bound to further amplify stock market declines. If U.S. stocks continue their sell-off tonight, the South Korean market could face a grim situation upon reopening.
Shoichi Arisawa, Researcher at Iwai Cosmo Securities Investment Research Department, views the current market correction as a necessary adjustment following the prior steep price surges. He believes the fundamental operating environment for AI and semiconductor companies, as well as the outlook for chip demand, has not materially changed.
Naoki Fujiwara, Senior Fund Manager at Shinkin Asset Management in Tokyo, expressed a lack of market confidence in the earnings outlook for memory chip makers. The apparent recovery in demand might merely be downstream customers stockpiling inventory to avoid anticipated price hikes.
If downstream companies like Alphabet, which report earnings next week, provide optimistic guidance, the stock market could see a rebound. Should the Nikkei fall to 63,000 points, its price-to-earnings ratio would be just 17 times, which would be attractive given the current market environment.
Wen Xunneng, CEO of Zhuliu Asset Management in Shanghai, stated that the global AI bubble is bursting, with the A-share market's correction following the declines in South Korean and U.S. stocks.
The continued expansion of the AI industry does not guarantee perpetual stock price increases. He added that the high volume of quantitative funds in the domestic market is exacerbating volatility, suggesting it will take considerable time for Chinese tech stocks to stabilize.
Shrikant Kale, Senior Quantitative Strategist at Jefferies in Hong Kong, suggested the market may gradually lower growth expectations for crowded AI beneficiary stocks. Previous stock prices implied optimistic assumptions of flawless operations and consistently beating expectations, whereas capital is now pricing in a more sustainable path of moderate growth.
Zhang Zhiwei, Chief Economist at Precise Asset Management in Hong Kong, characterized this round of correction as primarily technical, with no major changes in industry fundamentals and market expectations for tech capital expenditure largely unchanged. The essence is the concentrated unwinding of previously crowded trades, triggering a stampede for the exits.
Gary Tan, Portfolio Manager at Allianz Global Investors in Singapore, analyzing fund flows, suggested the decline resembles a clearing of the bubble in popular AI stocks rather than a passive sell-off solely triggered by rising U.S. bond yields.
Flow data indicates investors are taking profits specifically on this year's leading AI performers and are not rotating en masse into underperforming sectors like software, consumer goods, or internet stocks.
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