Key Takeaways:
Asian equities suffered their worst session in months as a red-hot AI-driven rally unraveled, wiping $1.8 trillion from global markets.
Asian stocks plunged Monday, with South Korea's KOSPI sinking more than 8% and Japan's Nikkei 225 falling 4.1% to 63,886.04, after a blockbuster U.S. jobs report fueled bets on Federal Reserve rate hikes and triggered a rout in technology shares.
"The move looks more like a positioning and momentum unwind than a reassessment of the long-term AI story," said Marc Velan, head of investments at Lucerne Asset Management in Singapore. "Korean technology names have been among the strongest performers globally and were heavily owned, so when rate expectations shifted after the jobs report, they became a natural source of liquidity."
The tech-heavy Nasdaq Composite slumped 4.2% on Friday, dragging the S&P 500 down 2.6% and snapping a nine-week winning streak. The selloff erased approximately $1.8 trillion in S&P 500 market capitalization, according to a UOB note. In Asia, chipmakers bore the brunt: Samsung Electronics fell 9%, SK Hynix lost 6%, and SoftBank Group dropped more than 7%. Taipei's benchmark sank more than 5%, while Hong Kong's Hang Seng Index declined 1.5% to 24,591.60 and the Shanghai Composite slipped 1% to 3,987.33.
The question for investors is whether this marks a healthy correction in a nine-week rally or the beginning of a deeper drawdown. The week ahead brings U.S. consumer price data Wednesday, central bank meetings in Canada and Europe, and the SpaceX listing — a confluence of events that could determine whether the AI trade resumes or undergoes a more fundamental reassessment.
The selloff was amplified by leveraged exchange-traded funds and momentum-driven positioning, according to Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. "When you start to see some doubt on this positive earnings momentum, you see the market becoming very, very nervous," he said. The KOSPI's decline was severe enough to trigger a 20-minute trading halt, with the index falling as much as 8.8% at one point.
The catalyst for the rout was Friday's U.S. jobs report, which showed May payrolls more than double the consensus estimate, with prior months revised higher. Two-year Treasury yields surged more than 11 basis points to 4.1782%, as traders priced in a greater probability of a rate hike this year. The dollar strengthened past 160 yen, adding pressure on Asian currencies and export-oriented stocks.
Geopolitical tensions add to pressure
Renewed Middle East hostilities compounded the risk-off mood. Israeli strikes on Beirut prompted Iran to direct missiles at Israeli targets, sending Brent crude up 3.4% to $96.24 a barrel. OPEC+ agreed Sunday to a fourth consecutive output increase, but the supply response did little to temper the oil price spike. "The market regime has potentially shifted from moderate inflation and rate cuts to potential overheating contributing to higher Treasury yields, a higher path of short-term interest rates and tighter liquidity," said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
The tech rout extended beyond equities. Bitcoin fell below $60,000 on Friday for the first time since October 2024, before recovering to around $63,000 Monday. The cryptocurrency notched its heaviest weekly drop since the collapse of FTX in late 2022, falling about 16% last week.
For Asian markets, the combination of rising U.S. real yields, a stronger dollar, and elevated oil prices creates a challenging backdrop. Thomas Mathews, head of markets for Asia-Pacific at Capital Economics, noted that the weaker-than-expected Broadcom result late last week brought back investor nerves around the AI trade. "The bigger picture is that semiconductor companies are still making lots of money and the broader economy is strong, which isn't typically a backdrop for a sustained drawdown," he said.
This article is for informational purposes only and does not constitute investment advice.
