South Korea led a selloff in Asian chip stocks, as rising bond yields exacerbated worry over the large sums of cash being shelled out by Big Tech.
The Korean benchmark Kospi tumbled as much as 6.8% Wednesday before paring the decline, with Samsung Electronics Co. and SK Hynix Inc. each slumping more than 8%. A Bloomberg gauge of Asian semiconductor names fell 3.2%. Kioxia Holdings Corp. dropped as much as 11%, while Taiwan Semiconductor Manufacturing Co. dipped nearly 2%.
The declines tracked losses in US semiconductor and other AI-related shares as concerns over inflation and rising government debt kept bond yields elevated. The threat of higher borrowing costs is adding to market worries amid ongoing uncertainty over the Iran war.
While the long-term AI growth story is still intact, “higher rates and geopolitical risk are making investors less willing to pay a premium for that growth,” said Jung In Yun, chief executive officer at Fibonacci Asset Management Global. The stock declines reflect some degree of profit-taking “after an exceptionally strong rally,” he added.
The AI complex had gotten a boost from recent earnings reports indicating continued robust capital expenditures. Still, the Bloomberg Asian chip index remains down 19% from its June record high as investors continue to seize opportunities to exit overcrowded and overheated trades.
“The nascent AI rebound hit a roadblock overnight just as it was starting to draw a momentum bid again after the recent meltdown,” Andrew Jackson, head of Japan equity strategy at Ortus Advisors, wrote in a note on Smartkarma. “Persistently high longer-term borrowing costs are causing many to question the ginormous debt a lot of these hyperscalers are taking on.”
Korea continues to be the focus of the Asian tech trade, after an investor frenzy that pushed market values of Samsung and SK Hynix to more than $1 trillion each. The Kospi is still seeing daily swings exceeding 5%, although the mountain of leveraged trades that drove record levels of volatility has started to unwind.
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