Hong Kong stocks recouped all their intraday losses on Tuesday as the market recovered from early losses despite continued pressure on technology stocks.
Hong Kong’s benchmark Hang Seng Index swung to a gain of 0.3% at the close, extending its winning run to third day, but the Hang Seng Tech Index remained in the red, falling 0.8%.
The AI-led rally that powered the key Asian markets has come under intense selling pressure in recent sessions as investor anxiety grows over the sustainability of the rally amid soaring valuations. Emerging competitive threats from China have also weighed on sentiment.
South Korea’s benchmark Kospi suffered a steeper sell-off, plunging more than 7% intraday and falling below the 6,000 mark before recovering some of its losses. The index fell around 5% on Tuesday.
The losses were led by Samsung Electronics, which plunged 7.4%, while memory-chip maker SK Hynix crashed 10.1%.
Japan’s Nikkei 225 also dropped 1.8% to 67,777.52. Chip-equipment maker Tokyo Electron fell 7.2%, while SoftBank Group, an investor in OpenAI, lost 8.5%.
Taiwan’s Taiex fell 2%, with its leading chipmaker, Taiwan Semiconductor Manufacturing Co. (TSMC), also declining 2%. Enthusiasm for artificial intelligence has cooled as investors weigh the outlook for capital expenditure against rising borrowing costs.
Meanwhile, The Shanghai Composite Index closed flat, after falling as much as 1.4% in the morning session to a three-month low. The blue-chip CSI 300 Index recovered some of its losses but still closed 0.3% lower.
China’s CXMT intensifies competition concerns
Selling in chipmaking heavyweights intensified on Tuesday following a report that Chinese rival CXMT had made progress in developing memory technology that Samsung and SK Hynix are also working on. The news came less than a day after Broadcom Inc. Chief Executive Officer Hock Tan said many AI investors have little understanding of what they are betting on.
On Monday, Wall Street’s benchmark S&P 500 edged down 0.1%. The Dow Jones Industrial Average added 0.4%, while the technology-heavy Nasdaq Composite declined 0.4%.
Chip-related shares also traded lower. Nvidia fell 1.3%, Advanced Micro Devices (AMD) declined 2.3%, icron Technology lost 3.9%, and Broadcom slipped 1.9%.
With the S&P 500 nearly 120% above its 2022 low, the sustainability of the four-year bull market increasingly hinges on corporate earnings keeping pace with elevated valuations.
AI bubble warnings mount
The weakness comes ahead of the third-quarter earnings season, with major US banks Goldman Sachs Group, JPMorgan Chase, Citigroup, and Wells Fargo scheduled to report on Tuesday. Bank of America and Morgan Stanley are due to report on Wednesday.
Warnings about the AI trade are also mounting, with Broadcom CEO Hock Tan the latest to flag concerns. Last week, billionaire investor Ray Dalio warned that AI was a “classic bubble” nearing a potential bursting point, citing rising interest rates and the need for investors to convert wealth into cash.
The International Monetary Fund has also recently warned that sky-high valuations, rising corporate debt, and escalating cyber threats linked to the artificial intelligence boom pose heightened risks to global financial stability.
(With inputs from Bloomberg and Reuters)
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