ASIAN markets tumbled on Thursday (Jul 25) after a tech-fuelled sell-off saw Wall Street tank, as disappointing earnings caused traders to panic that a months-long rally in the sector may have been overdone.
Tokyo’s Nikkei led the retreat in equities, with a stronger yen adding to the downward pressure on exporters, while technology giants across the region were deep in the red.
Global stocks have pushed ever higher this year – with New York’s three main indexes hitting multiple records – with tech titans such as Alphabet and chip makers such as Nvidia and TSMC boosted by an explosion of interest in all things linked to artificial intelligence (AI).
The rallies have been helped by blockbuster profits and upbeat outlooks, causing investors to pile more cash in owing to a fear of missing out.
However, with valuations pushing to dizzying heights, analysts have been warning about retreat, and Tuesday’s earnings from Tesla and Google-parent Alphabet provided a selling opportunity.
Tesla said profits fell 45 per cent in the second quarter owing to price cuts and aggressive AI investment and while Alphabet beat forecasts, results from YouTube were less upbeat.
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The two firms are part of the so-called Magnificent Seven tech kings who have been key to the driving gains in markets this year. Tesla shed 12.3 per cent and Alphabet gave up five per cent.
All three main indexes on Wall Street tumbled, with the Nasdaq shedding more than three per cent and the S&P 500 down more than two per cent in its worst day since December 2022.
“Investors are now facing the pressing question: How long will it take for these massive investments by hyperscalers to start delivering over-the-top results?” asked analyst Stephen Innes.
“Patience is becoming the new flag-bearer for recent tech stockholders as they wait for these tech bets to pay off,” he added.
Asia followed suit, with tech firms among the big losers – Seoul’s SK Hynix dived more than eight per cent at one point despite strong earnings, while in Tokyo Sony was off more than four per cent and SoftBank more than seven per cent.
Hong Kong and Shanghai fell even after a surprise cut in a key rate by the Chinese central bank.
Sydney, Seoul, Singapore, Wellington, Manila and Jakarta were also well in the red.
The Nikkei in Tokyo tumbled more than three per cent at one point.
Hideyuki Suzuki, senior analyst at SBI Securities, said that “falls in the US tech sector – especially a plunge in Tesla shares, and disappointing Alphabet earnings – as well as a stronger yen weighed on the market”.
The boom in electric vehicle sales is slowing, and “excessive expectations for AI and other technologies are being corrected”, he said.
However, he added that “it’s not that economic fundamentals are worsening, so shares may rebound after” Japanese and US central bank meetings.
“The yen is higher on speculation that the Bank of Japan may hike interest rates” at its meeting next week, but views are divided, Suzuki said.
The yen extended a rally against the US dollar that has been underway in recent weeks, having hit a nearly four-decade low near 162 at the start of this month.
The Japanese unit strengthened to as much as 152.65 per US dollar at one point, with Innes saying “traders seem to have shifted from squaring short yen positions to taking long yen bets” ahead of the meeting.
Market watchers are divided on whether Japan’s central bank will raise interest rates again as officials look to normalise their longstanding ultra-loose monetary policy. AFP
