Asian stock markets experienced a significant downturn on Friday, October 17, with major indices in Japan and Taiwan witnessing declines of up to 6% as the sell-off in technology shares intensified globally.
The Nikkei 225 index in Japan entered correction territory, having dropped over 10% from its record closing high on June 25.
According to Takamasa Ikeda, a senior portfolio manager at GCI Asset Management in Tokyo, “The Nikkei’s performance is closely linked to the SOX index. The rapid appreciation of the SOX was not sustainable, and a correction was expected, albeit earlier than many had predicted.”
Ikeda also noted concerns among investors regarding the return on investments made by hyperscalers, which are financed through heavily leveraged loans from banks and private lenders.
Christopher Forbes, head of Asia and the Middle East at CMC Markets in Singapore, commented, “The tech earnings were solid, but they reflect the high expectations already factored into prices. SpaceX’s performance serves as a barometer for market sentiment, currently trading below its IPO value. While I don’t see panic in the markets—investors are still purchasing gold and silver, which have not performed well—the reality is that rising yields are prompting a sell-off.”
Johan Javeus, a senior economist at SEB in Stockholm, attributed the sell-off to a mix of profit-taking among AI stocks and lingering concerns about a potential bubble in AI investments. The disappointing performance of SpaceX’s IPO has heightened investor anxiety.
Kei Okamura, a portfolio manager at Neuberger Berman in Tokyo, suggested that comments from Kevin Warsh regarding a more hawkish Federal Reserve triggered the market’s downward momentum. “We initially saw selling pressure from well-known companies like SK Hynix and Samsung, which then spread across the market,” he explained. “The situation for the Nikkei is dire, and the term ‘bloodbath’ is fitting given the widespread declines.”
Fabien Yip, a market analyst at IG in Sydney, emphasized that investors are now focused on the sustainability of growth numbers rather than just increases. “Retail investors have leveraged their positions during the AI rally, and as these positions unwind, it could significantly exacerbate the declines,” he noted.
Yip further predicted that if the sell-off continues into the U.S. trading session, it could lead to severe repercussions for the Korean market when it reopens.
Shoichi Arisawa, a fellow at the investment research department of Iwai Cosmo Securities in Tokyo, expressed that the current market correction is a reaction to the previous rapid gains. However, he believes the business environment for AI and semiconductor firms remains relatively unchanged.
Naoki Fujiwara, a senior fund manager at Shinkin Asset Management in Tokyo, mentioned that the market’s trust in memory chip manufacturers is waning, even though demand is expected to rise. He pointed out that upcoming earnings reports from companies like Alphabet could influence the market’s rebound potential.
Wen Xunneng, CEO of Zhu Liu Asset Management in Shanghai, remarked, “The global AI bubble is deflating, with corrections in A-shares following declines in South Korean and U.S. markets. While the AI sector continues to grow, that does not guarantee rising stock prices.” He noted that the presence of numerous quantitative funds in China is also contributing to market volatility, indicating a lengthy stabilization period ahead for Chinese tech stocks.
Shrikant Kale, a senior quantitative strategist at Jefferies in Hong Kong, suggested that the market might be adjusting its expectations for earnings growth among AI stocks, shifting from an unrealistic outlook to a more sustainable growth path.
Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, stated that the recent correction seems to be more technical than fundamental, attributing it to an adjustment of crowded positions rather than any significant change in capital expenditure expectations in the tech sector.
Gary Tan, a portfolio manager at Allspring Global Investments in Singapore, observed that the current market movements appear to be more about profit-taking among leading AI stocks rather than an immediate response to rising yields, indicating a trend of investors realizing gains rather than shifting to underperforming sectors.
