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Global equities extended their declines on Wednesday, as the sell-off on Wall Street triggered by fears of an artificial intelligence investment bubble spread to Asia.
South Korea’s Kospi, one of the year’s top-performing indices due to enthusiasm over AI, slid as much as 6.2 per cent, later recovering some gains to close 2.9 per cent lower. Japan’s Nikkei 225 index closed down 2.5 per cent, and the Taiex in Taiwan dropped 1.4 per cent.
The declines came after the S&P 500 and tech-heavy Nasdaq Composite dropped 1.2 per cent and 2 per cent respectively on Tuesday, as concerns rose about the elevated valuations for AI companies and Wall Street executives warned markets were vulnerable to a retreat.
“A more defensive mood has gripped global markets this week,” said Chris Turner, head of markets research at ING, adding that “it seems clear that markets are overextended” in terms of equity valuations.
Hong Kong’s Hang Seng index edged down 0.2 per cent and mainland China’s benchmark CSI 300 rose 0.2 per cent.
Tech stocks led smaller declines in Europe, with the Stoxx Europe 600 index down 0.4 per cent in a broad-based decline in early trading. Chipmakers ASML and BE Semiconductor Industries both dropped 3 per cent
US markets were also poised for more muted declines on Wednesday. Nasdaq 100 futures were down 0.3 per cent.
“There is some point where we will be probably closer to a correction than we are to a 10 per cent, 20 per cent [rise] up from here,” said Andrew Schlossberg, chief executive of Invesco, speaking during a financial summit organised by the Hong Kong Monetary Authority.
The gains in Asian stock markets this year have been concentrated in shares of companies exposed to AI demand in the US. OpenAI, Anthropic and Elon Musk’s xAI have had their values marked up repeatedly over the past year.
“AI expectations have increased significantly in north Asia over the past month,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas, citing a string of deals between the region’s chipmakers and US AI businesses.
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Asian chipmakers were among the companies most heavily sold. SK Hynix and Samsung Electronics, manufacturers of the high bandwidth memory chips used in AI, fell as much as 9.1 per cent and 7.2 per cent respectively before paring losses.
Taiwan Semiconductor Manufacturing Company, the world’s largest chipmaker, slipped 2.7 per cent.
The risk-off sentiment could be seen in other asset classes; the price of gold edged up 1.2 per cent to $3,980 a troy ounce, and government bonds rallied. The yield on the 10-year US Treasury, which moves inversely to the price, fell 0.02 percentage points to 4.07 per cent.
Bitcoin reversed losses as it gained 1.5 per cent to $101,785 a token.