The selloff in US semiconductor stocks overnight cascaded into Asian markets on Wednesday, with risk assets under pressure globally as bond yields remained elevated and oil prices climbed higher.
Seoul's KOSPI index at one point widened its decline to more than 6%, making it one of the worst-performing markets in the Asia-Pacific region. South Korea's exchange subsequently activated the SIDECAR mechanism, temporarily suspending program selling to stem the selling momentum.
The MSCI Asia-Pacific index fell more than 1% to 273.09 points. Japan's TOPIX index extended its decline to 2.4%, while the Nikkei 225 index also dropped over 2%.
The primary catalyst for this correction was the 5% plunge in US semiconductor stocks on Tuesday, which transmitted losses to Asia. Both Samsung Electronics and SK Hynix declined approximately 7%, with Nasdaq 100 futures also softening further.
Meanwhile, the US 30-year Treasury yield briefly touched 5.34% during Tuesday's session—the highest level since 2007—while the 10-year yield rose to 4.75%. These elevated borrowing costs continue to weigh on growth stock valuations.
Kazunori Tatebe, chief strategist at Daiwa Asset Management, noted that with the Middle East situation remaining uncertain and yields holding at elevated levels, markets are likely to stay in risk-off mode today. He also pointed out that higher yields will increase borrowing costs for hyperscale cloud companies, raising questions about their capital expenditure outlook and the potential impact on AI infrastructure firms.
High Bond Yields Hit Growth Stocks First
Long-end US Treasury yields hovering near multi-decade highs have become one of the core factors pressuring Asia-Pacific equities.
The US 30-year Treasury yield briefly hit 5.34% intraday Tuesday, the highest since 2007, before closing slightly lower at 5.28%. The 10-year yield touched 4.75% on Tuesday.
During Wednesday's Asia-Pacific session, the 10-year Treasury yield was largely flat at 4.70%. Japan's 10-year government bond yield declined 1.5 basis points to 2.92%, while Australia's 10-year yield fell 3 basis points to 5.06%, reflecting a brief flow of funds back into bond markets.
The Federal Reserve's latest meeting minutes are scheduled for release at 2:00 AM Beijing time Thursday, with markets hoping to glean clues on policy direction. Kay Herr, chief investment officer of JPMorgan's global fixed income, FX and commodities team for the US, said in a Bloomberg TV interview that markets are concerned about what the Fed's reaction function actually is, noting that markets do not like the reality of lacking forward guidance.
Dan Pan, Americas economist at Standard Chartered, also pointed out that rising inflation risks combined with growing fiscal concerns are driving long-end US yields higher, with overall risk sentiment remaining cautious.
Middle East Tensions Intensify, Oil Prices Add Pressure
Geopolitical tensions are further amplifying market unease.
According to Xinhua News Agency, citing Abu Dhabi on August 19, the UAE's Ministry of Foreign Affairs announced early Monday that given the escalating regional situation undermining regional and international peace and security, the UAE has decided to suspend all trade, commercial exchanges and financial transactions with Iran until further notice.
The UAE Ministry of Defense stated on Sunday that its air defense systems detected two ballistic missiles launched from Iran, with one landing outside UAE territorial waters and the other within its territorial waters. The ministry said the country is on high alert and prepared to respond to any threats.
During Wednesday's Asia-Pacific session, crude oil extended gains. WTI crude rose 0.8%, while Brent crude advanced 0.67% to $91.63 per barrel.
Fawad Razaqzada, analyst at GAIN Capital, said that higher energy costs combined with higher long-term borrowing costs are becoming increasingly difficult to bear, and equity investors are finally beginning to react by shifting toward more defensive allocations.
In the currency market, the dollar index was largely flat, the yen held near 159.49, offshore yuan remained stable around 6.7469, and the Australian dollar edged down 0.1% to $0.7080.
Gold rebounded slightly, gaining 0.22% on the day to trade around $4,343 per ounce.
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