Asian Stocks Decline Amid Global Chip Selloff
Asian stocks faced a significant decline on Thursday, primarily driven by the intensified global selloff in technology stocks. The market sentiment was heavily influenced by concerns over tighter US restrictions on chip sales to China, leading to notable drops in Japan and South Korea.
Topix and Yen Influence
Shares in Japan and South Korea saw substantial declines, with the Topix index falling by as much as 1.5%. This decline was exacerbated by a stronger yen and the continued fallout from heavy selling in chipmakers worldwide. Tokyo Electron Ltd. experienced a significant drop for the second consecutive day, losing almost 11% of its value.
Fluctuations in Hong Kong and China
Hong Kong and mainland Chinese stocks fluctuated during early trading. The Hang Seng Tech Index dipped by as much as 1.2%. In contrast, US futures showed slight improvement after a rough session where the S&P 500 fell by 1.4% and the Nasdaq experienced its worst day since 2022, dropping 2.9%.
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Impact on Global Chipmakers
The selloff in global chip stocks was profound. Major US chipmakers, including Nvidia Corp., Advanced Micro Devices Inc., and Broadcom Inc., drove a closely watched semiconductor index down nearly 7%, marking the largest slide since 2020. In Europe, ASML Holding NV saw an 11% tumble despite reporting strong orders, highlighting the market’s sensitivity to geopolitical developments.
US Restrictions and Market Reactions
The Biden administration has informed allies about potential severe curbs on companies like Tokyo Electron and ASML if they continue providing China with advanced semiconductor technology. This possibility has fueled concerns about market stability and contributed to the selloff.
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Analysis and Market Sentiment
Matt Maley from Miller Tabak + Co. suggested that the prospect of new chip restrictions could trigger a market correction. The broad indices have become overbought, and the selling pressure in chip stocks could act as a catalyst for a broader market correction.
Treasury and Bond Markets
Treasuries remained steady in early Asian trading following minimal movements on Wednesday. The Federal Reserve’s Beige Book indicated slight economic growth and cooling inflation. Fed Governor Christopher Waller mentioned that the Fed is approaching a point where it might cut rates, although it is not there yet. Australian and New Zealand bonds showed little change.
Currency Movements
An index measuring dollar strength traded near its lowest level in two months. The yen strengthened after rising 1.4% against the dollar in the previous session, reaching levels not seen since early June. The Bank of Japan is expected to cut its bond-buying more than anticipated to avoid weakening the yen further.
Political and Economic Landscape
The Biden administration faces a challenging situation with US companies feeling the impact of export restrictions to China. Former President Donald Trump’s comments on Taiwan added to the geopolitical tension, questioning the US commitment to defend Taiwan, a crucial hub for semiconductor manufacturing.
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Sarah Bianchi from Evercore ISI noted that while markets might view a potential second Trump administration positively, the core policy agenda of raising tariffs and restricting immigration could lead to lower growth and higher inflation.
Tech Sector Outlook
The underperformance of tech stocks comes after a strong first half where megacap stocks propelled the market higher. Jose Torres from Interactive Brokers highlighted the risk if the broader market cannot offset the waning momentum in leading tech stocks.
Asian Economic Data and Oil Market
Upcoming economic data from Asia includes Japan’s trade data for June, labor market figures for Australia, and unemployment rates for Hong Kong. In China, President Xi Jinping is set to reveal his long-term economic vision at a significant reform conclave.
In the oil market, West Texas Intermediate, the US oil benchmark, continued to rise after gaining 2.6% on Wednesday, influenced by Canadian wildfires threatening significant oil production.
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Key Events to Watch
- ECB rate decision
- US initial jobless claims
- Philadelphia Fed manufacturing
- Conference Board LEI
- Speeches from Fed officials Mary Daly, Lorie Logan, Michelle Bowman, John Williams, and Raphael Bostic
Market Movements Snapshot
- S&P 500 futures: Rose 0.2% as of 9:05 a.m. Tokyo time
- Hang Seng futures: Fell 0.3%
- Japan’s Topix: Fell 1.4%
- Australia’s S&P/ASX 200: Fell 0.1%
- Euro Stoxx 50 futures: Fell 1.1%
Currency and Cryptocurrency Movements
- Dollar Index: Little changed
- Euro: Unchanged at $1.0939
- Japanese yen: Rose 0.3% to 155.76 per dollar
- Offshore yuan: Little changed at 7.2681 per dollar
- Bitcoin: Fell 0.5% to $64,175.71
- Ether: Fell 0.6% to $3,394.95
Bond and Commodity Markets
- 10-year Treasuries yield: Little changed at 4.16%
- Australia’s 10-year yield: Declined two basis points to 4.23%
- West Texas Intermediate crude: Rose 0.3% to $83.11 a barrel
- Spot gold: Little changed
This story was produced with the assistance of Bloomberg Automation.
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