AI anxiety sparks tech rout, broad selloff in Asian markets

SINGAPORE: Asian stock markets extended losses on Tuesday as a sharp selloff in technology shares, driven by concerns over artificial intelligence (AI) spending and rising competition from China, dragged regional indices lower. 

South Korea's KOSPI plunged nearly 10% to a three-month low, while Japan's Nikkei fell about 4% amid growing uncertainty over global interest rates.

The KOSPI's decline triggered a circuit breaker and put the benchmark on track for its steepest monthly fall since the 1997 Asian financial crisis. After more than tripling in value over the 12 months to June, the index has now lost more than a third of its value from its peak.

Technology stocks led the declines, with SK Hynix and Samsung Electronics dropping more than 12% as investors unwound positions following an extended rally in AI-related shares.

Japan's Nikkei also came under pressure after the Philadelphia Semiconductor Index fell 2.2% overnight, reflecting weakness across the global semiconductor sector.

Market participants cited a combination of concerns over the sustainability of AI investment, uncertainty over who will finance the next phase of data centre expansion, and China's growing capabilities in semiconductor manufacturing.

The latest pressure followed reports that China has begun manufacturing domestically developed immersion deep ultraviolet (DUV) lithography machines, a technology long dominated by Dutch chip equipment maker ASML. The report pushed ASML shares down 8.5% on Monday.

Investor sentiment was also affected by the stock market debut of CXMT Corp, the world's fourth-largest memory chip maker, which raised $8.6 billion and briefly became China's most valuable listed company. Analysts said investors were more concerned about the company's future production expansion than its current earnings.

Meanwhile, Nvidia shares fell 5% overnight after reports that the company was discussing around $250 billion in financing guarantees for OpenAI as part of a large-scale data centre project.

In Tokyo, semiconductor-related stocks also faced heavy selling, with Kioxia falling 18% and Tokyo Electron losing 11%.

In commodity markets, Brent crude extended Monday's nearly 9% decline, slipping more than 1% to $87.19 per barrel, after easing tensions between the United States and Iran reduced concerns over supply disruptions. US President Donald Trump said Washington was holding "good talks" with Iran and that a deal remained possible.

Despite lower oil prices, investors remained cautious ahead of the US Federal Reserve's policy meeting. Markets are currently pricing in a 38% probability of a 25-basis-point interest rate hike this week.

The prospect of tighter US monetary policy kept the US dollar firm, while the Japanese yen traded near a four-decade low at 163.78 per dollar, increasing speculation that Japanese authorities could intervene in the foreign exchange market if the currency weakens further following this week's Bank of Japan meeting.