AI Euphoria Fades, Sparking Major Asian Market Sell-Off
Fears of an artificial intelligence (AI) bubble and disappointing US jobs data triggered a severe sell-off across Asian markets on Friday, wiping out gains from chipmaker Nvidia's stellar earnings report earlier in the week. Investors, gripped by uncertainty, rushed to dump risk assets, leading to a sea of red and significant losses for major technology firms.
Tech Titans and Broader Markets Take a Hit
The downturn was led by the region's technology giants. In Seoul, Samsung Electronics sank nearly 5%, while its rival SK hynix plummeted more than 9%. Taiwan's chip titan, TSMC, tanked nearly 4%, and Japan's tech investment firm SoftBank plunged over 10% in Tokyo. This tech-led retreat pulled broader indices down with them.
Major financial hubs recorded substantial declines: Tokyo, Hong Kong, Seoul, Sydney, and Taipei all fell between 1.6% and 3.2%. Losses were also seen in Shanghai, Singapore, and Wellington. The flight from risk extended to cryptocurrencies, with bitcoin falling below $93,000 for the first time since April, a sharp retreat from its record high above $126,200 touched just last month.
From Nvidia's High to Wall Street's Low
The sell-off followed a volatile period that began with optimism. On Wednesday, a blockbuster earnings report from Nvidia had temporarily soothed nerves. The chip giant's boss, Jensen Huang, dismissed fears of an AI bubble, stating, "From our vantage point, we see something very different."
However, the euphoria was short-lived. Wall Street reversed early gains on Thursday after data showed a mixed US jobs report for September. While more jobs were created, the unemployment rate crept higher. This data reinforced the belief that the Federal Reserve will keep interest rates unchanged at its meeting next month, as officials remain focused on stubbornly high inflation. Recent hawkish comments from Fed officials, including Chair Jerome Powell, had already dampened expectations for a rate cut.
Chris Weston from Pepperstone noted, "The market seems far more sensitive and ready to de-risk on emerging news, almost seeking reasons to take positioning down." He added that sentiment remains highly challenged, with managers dumping their previous winners.
Global Ripples and Economic Pressures
Attention is also on Tokyo, where there is talk of Japanese Prime Minister Sanae Takaichi unveiling a massive stimulus package worth around $130 billion to boost the economy. However, this has raised concerns about increased government borrowing, pushing bond yields higher and putting severe pressure on the yen, which hit its lowest level against the dollar since January.
The collective market action signals a significant shift in investor confidence, suggesting the tech-led rally that drove markets to record highs may be facing a substantial correction.
