The sudden slump in Asia’s technology shares last week has jolted investors, serving as a stark reminder that the world-beating rally in artificial intelligence (AI) and semiconductor stocks might be nearing a short-term crest.
The region’s sharpest decline since April — triggered by a tech-led sell-off on Wall Street — has refocused attention on cracks beneath the surface: the rally’s narrow breadth, heavy reliance on retail traders, and growing uncertainty around the timing of US Federal Reserve interest-rate cuts.
Last week’s “sell-off is a reminder that Asia’s market structure is just more vulnerable,” Saxo Markets chief investment strategist Charu Chanana said in Singapore. “Further corrections will come. The trigger, in my opinion, was extended valuations and we have not corrected that. So the Asia chip market is likely to be volatile.”
Photo: Bloomberg
Asia’s tech sector has outpaced its US counterpart this year, fueled by cheaper valuations and the excitement sparked by China’s AI breakthroughs, particularly that of DeepSeek (深度求索). The MSCI Asia Pacific Index has climbed 24 percent this year — on track to outperform the S&P 500 by the widest margin in 16 years.
However, its meteoric rise has stirred concern about overheating. South Korea’s stock exchange has even warned about the dangers posed by the more than 200 percent surge in SK Hynix Inc shares this year.
Those gains helped set the stage for last week’s reversal. The MSCI Asia technology gauge slid about 4.2 percent on Wednesday, its biggest intraday fall since April’s US tariff shock. South Korea’s KOSPI plunged about 6.2 percent, while Japan’s Nikkei 225 tumbled about 4.7 percent.
Key Nvidia Corp suppliers — including SK Hynix and Advantest Corp — were among the hardest hit, each losing about 10 percent.
Analysts say Asia’s outsized losses reflect another structural issue: the extreme concentration of tech giants in regional benchmarks. Taiwan Semiconductor Manufacturing Co (台積電) accounts for more than 40 percent of the TAIEX, triple its share a decade ago. In South Korea, Samsung Electronics Co and SK Hynix together make up about 30 percent of the KOSPI.
Japan is no exception: The top five stocks in the Nikkei 225 account for about 38 percent of total weighting.
“If anything goes wrong with the AI or semiconductor boom, the Nikkei will plunge immediately,” Phillip Securities Japan equity trading head Takehiko Masuzawa said in Tokyo. “I do think we’ll continue to see more corrections and heightened volatility going forward.”
The heavy involvement of retail investors in the rally has amplified swings, analysts say.
“With foreign investors still on the sidelines, higher retail and domestic participation is driving greater volatility and sector rotation across Asian markets,” KB Securities Co managing director Peter Kim said in Seoul. “Less liquidity and institutional participation, and the high beta features of Asian stocks are especially evident in AI themes.”
A strengthening US dollar has intensified pressure on Asian chipmakers, luring funds back to US assets. Traders are scaling back bets on imminent Fed rate cuts, removing a key tailwind for global equities.
To be sure, not everyone viewed last week’s pullback as a reason for alarm.
“What we saw was taking profit, nothing more, nothing less,” NH Investment & Securities Co equity trader Shawn Oh said in Seoul. “Psychology is playing a big role rather than fundamentals. Many people probably thought there would be a correction at least once too.”
Even after the rout, valuations in Asia’s chip sector remain comparatively appealing: Bloomberg’s regional semiconductor gauge trades at about 18 times forward earnings, well below the Philadelphia Semiconductor Index’s 28 times.
For others, the Asian tech sell-off — following the warnings from Goldman Sachs Group Inc and Morgan Stanley chief executives about the likelihood of a global stock pullback — was just another reason to turn more cautious.
“We’ve been sellers over the past few weeks,” M&G Investments equities portfolio manager Vikas Pershad said in Singapore. “We are focused on prospective returns, which is why we took profits in the sector last month. We’re not at levels where we would be looking to increase our exposure to those sectors yet.”
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