Asia-Pacific equity markets faced broad pressure on Friday, with the technology sector acting as the primary drag. Semiconductor stocks collectively gave back gains following strong rallies in the previous session. The lower-than-expected U.S. PCE inflation data released on Thursday provided slight relief to market concerns about further interest rate hikes, contributing to stability in gold prices and U.S. Treasury yields.
On Friday, South Korea's Kospi index led the decline in the region, falling over 3% intraday. Japan's Topix index declined by 1%. The MSCI Asia Pacific Index fell 1% to 276.01 points. Nasdaq 100 futures were down 0.6%. Analysts suggest that as month-end approaches, combined with pressure for portfolio rebalancing, investors' willingness to reduce technology exposure has increased significantly.
Asia-Pacific Markets: Chip Stocks Lead Declines, South Korea Plunges Over 3%
Markets in the Asia-Pacific region with heavy technology weightings bore the brunt of the sell-off. South Korea's Kospi index fell more than 4% intraday, becoming the worst-performing major index in the region. The Kosdaq index, which has a higher technology weighting, also fell over 1%.
SK Hynix Inc., Samsung Electronics Co., Ltd., and Kioxia Holdings Corp. were the largest negative contributors to the regional benchmark index, with all three experiencing significant pullbacks after substantial gains the previous day.
Japan's market was not immune. The Nikkei 225 index fell 2.79%, closing at 70,350.56 points, a drop exceeding 2,015 points. The Topix index declined 0.9%.
Analysis indicates that investors who had previously bet on the uninterrupted rise of the AI theme are now prone to overreact to any negative news, forcing position adjustments. With the end of June approaching, the accelerated desire to reduce exposure has further increased selling pressure.
The decline in U.S. technology giants on Thursday was a key factor in Friday's weakness across Asia-Pacific markets. Apple Inc. fell 6.1% after announcing price increases for Mac, iPad, and home device models. Microsoft Corporation also fell over 3% after raising prices for its Xbox game consoles, citing component shortages.
Market strategists note that the current environment severely tests investors' conviction in their holdings. The structural volatility of leading semiconductor and memory chip companies is significantly higher than the characteristics shown by the so-called Magnificent Seven in recent years.
They add that combining this backdrop with the "stunning repricing" of Federal Reserve rate hike expectations creates a recipe for heightened volatility.
Observers also point out that several cracks have appeared in the technology sector recently. The subsequent price action of the mega-cap cloud providers is crucial; if they continue to decline, the overall market's upside will be very limited.
Cooling PCE Data Slightly Eases Rate Hike Expectations
In bond markets, the yield on the 10-year U.S. Treasury note was largely steady around 4.40% on Friday. Japan's 10-year government bond yield edged up 1 basis point to 2.630%, while Australia's 10-year bond yield remained near 4.73%.
The U.S. core Personal Consumption Expenditures (PCE) price index rose 0.4% month-over-month in May, below economists' forecast of 0.5%. The year-over-year increase accelerated to 4.1%, still well above the Federal Reserve's 2% target.
Interest rate swap markets showed a slight decrease in bets for Fed rate hikes this year, pricing in about 34 basis points of tightening by the December policy meeting, down from roughly 36 basis points at Wednesday's close. The probability of a July rate hike has fallen to about one-third.
Foreign exchange markets were generally calm. The Bloomberg Dollar Spot Index strengthened slightly on Friday after a 0.2% decline the previous day.
Portfolio managers note that the short end of the yield curve offers an attractive risk-reward profile while the paths for inflation, policy direction, and geopolitical situations remain unclear, with the 1-to-3-year segment being particularly noteworthy.
Federal Reserve officials have indicated that current interest rates are at an appropriate level to guide inflation back toward the target.
Gold Holds Above $4000, Oil Prices Edge Lower
Gold prices maintained a consolidative pattern on Friday after reclaiming the $4000 per ounce level on Thursday.
Silver fell 1% to $57.22 per ounce.
Analysts believe gold's stability is partly due to the easing of rate hike expectations following the softer-than-expected PCE data. Market strategists point out that gold has largely priced in the risk of further Fed tightening but has not fully adjusted to the 'new normal' of persistently higher real interest rates.
They also stated that, despite the Fed's hawkish tilt at the last meeting, they personally do not believe the Fed will ultimately implement another rate hike.
On Friday, West Texas Intermediate (WTI) crude oil fell over 1% to $71.19 per barrel, while Brent crude also edged lower. On Thursday, a missile attack on a ship in the Strait of Hormuz briefly boosted oil prices due to geopolitical risks, but the gains did not extend into Friday's Asian trading session.
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