Oil is once again the dominant macro driver: with Brent near a two-week high on attacks on Saudi energy facilities and a fragile Russia-Ukraine energy truce, the inflation channel is pushing yields up and squeezing the high valuations that underpin tech-heavy Asian markets. The Kospi’s heavy weighting toward chipmakers made it the region’s most exposed market, so the depth of the drop reflects both AI rally fatigue and concentrated positioning unwinding. A firm dollar adds pressure on Asian currencies and on foreign flows into regional equities. US bank earnings and this week’s CPI data (preview, another preview) are the next tests, and any sign that energy costs are feeding into broader inflation would reinforce the hawkish rate outlook weighing on growth stocks.
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Asia’s AI darlings took the brunt of a nervous day, as oil reminded markets that geopolitics bites hardest when it feeds into inflation and higher rates.
Summary:
- South Korea’s Kospi fell more than 6% to below 6,000, its lowest level since July 31, as chipmakers led losses across the region
- Japan’s Nikkei dropped 2.6%, while in China the tech-heavy ChiNext fell 3%, the CSI 300 lost 1.3% and the Shanghai Composite slipped 1.2%
- The selloff followed weakness in US semiconductor stocks overnight, with the Nasdaq down 0.5% amid doubts over the durability of the AI rally and rising US-China competition
- Brent crude traded near a two-week high as investors weighed attacks on Saudi energy facilities and the prospect of additional Russian diesel supply
- The dollar held firm on safe-haven demand ahead of a US earnings season expected to set the tone for the rest of the year
Asian stock markets fell sharply on Tuesday, led by technology shares, as a semiconductor selloff on Wall Street combined with renewed oil-driven inflation concerns to hit the region’s most richly valued sectors, Reuters reported.
South Korea’s Kospi bore the brunt of the decline, sliding more than 6% to below the 6,000 mark and its lowest level since July 31. The index is heavily weighted toward chipmakers, leaving it particularly exposed to swings in sentiment toward the artificial intelligence trade. Japan’s Nikkei fell 2.6%, while Chinese markets also retreated, with the tech-focused ChiNext down 3%, the CSI 300 off 1.3% and the Shanghai Composite down 1.2%.
The weakness followed losses on Wall Street overnight, where the tech-heavy Nasdaq fell 0.5% as chip stocks came under pressure. Investors have grown increasingly anxious about how long the AI-driven rally can last, with rising competition between the US and China adding to the uncertainty. Doubts about the AI boom have featured heavily in recent days, from warnings over speculative investor behaviour to reports of an intensifying scramble for computing power and financing.
Energy markets have returned to the centre of global trading. Brent crude futures traded near a two-week high as investors assessed the fallout from attacks on Saudi Arabia’s oil facilities alongside the possibility of additional diesel supply from Russia. One strategist said markets were rediscovering that geopolitics matters most when it feeds into inflation, noting that the renewed rise in oil was keeping pressure on bond yields and taking some of the shine off expensive growth stocks. The fragile Russia-Ukraine energy truce and live supply risks in the Middle East were adding to that pressure, the strategist said.
The dollar held firm on safe-haven demand, adding to the headwinds for Asian assets.
Attention now turns to the US earnings season, which is expected to set the tone for markets through the rest of the year. Results from major US banks will offer early insight into how rising yields are affecting lending, dealmaking and funding costs, while this week’s US inflation data will show whether higher energy prices are filtering into broader price pressures. Until oil stabilises, investors are likely to remain cautious toward the high-growth sectors that led markets higher this year.
This article was written by Eamonn Sheridan at investinglive.com.