Asian markets were shaken by the sharpest sell-off in seven months as the AI rally stalled
Equities suffered their sharpest decline in seven months in Asia on Wednesday, with technology shares leading losses as investors put the brakes on a prolonged rally driven by artificial intelligence.
The decline from record highs was also fueled by concerns that equity markets may be overstretched, following comments from the CEOs of Wall Street heavyweights Morgan Stanley and Goldman Sachs who questioned the sustainability of high valuations.
MARKET REACTION: Nasdaq futures fell 1%, following a 2% drop in the cash index on Wall Street overnight and indexes in South Korea and Japan have fallen more than 5% from record highs reached on Tuesday.
COMMENT:
MATT SIMPSON, SENIOR MARKET ANALYST, STONEX, BRISBANE:
“When you consider the Nasdaq has rallied for seven straight months and is up more than 50% from its April low, the current selloff is just a push in the grand scheme of things.
“At some point, profits need to be booked.
“But when momentum changes as it did in global markets, stops are triggered and force traders to liquidate in other markets to stem losses – which in turn drives renewed bearish activity. Those with money at stake are unlikely to be looking for answers now – they are just copying each other like kids on a test. And the answer is to run.”
CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:
“It’s a classic day to relax and take profits among AI and semiconductor leaders in Asia after hitting record highs. Wobbles in big US tech companies have weakened sentiment across global growth and AI names, while a sharp crypto pullback tightened broader risk appetite, and a stronger yen weighed on export-heavy Japanese equities. Together, these forces are driving a healthy correction, which doesn’t yet look like panic selling.”
JASON WONG, SENIOR MARKET STRATEGIST, BNZ, WELLINGTON:
“It may be time to take a break from the equity market rally we are experiencing. For a while, everything was only going one way, and now there is risk-off pervading the market.
“Perhaps last week’s US Fed was a warning that the path to looser US policy is not yet set in stone. We are too late for a slight correction.”
RYAN FELSMAN, CHIEF ECONOMY, COMMSEC, SYDNEY:
“I think there is a bit of profit-taking at the moment. There is uncertainty around the US government – we are now entering the 35th day of the federal government shutdown. There is concern we will see higher bond yields when the US government eventually reopens, and higher bond yields often mean growth and rate-sensitive stocks like technology are under pressure.
“Obviously, the technology sector is perfectly priced right now. It’s expensive and of course investors are a little worried that the market is running too hard.”
SHIER LEE LIM, LEAD FX AND MACRO STRATEGY APAC, CONVERA, SINGAPORE:
“The lack of a clear catalyst suggests that investor caution is driven by a combination of macroeconomic uncertainty, including concerns over the growth outlook, ongoing government shutdown negotiations in the US, and increased scrutiny of capital spending in key industries.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY:
“I think this is the start of the move… probably a combination of six or seven reasons that started this risk-aversion sell-off.
“The rally has been relentless from the April lows and combined with CEOs warning of a correction and Big Short Michael Burry saying he bought the dip in Nvidia and Palantir and then the now record (US) government shutdown – there are so many reasons now to continue this decline.”
JON WITHAAR, SENIOR PORTFOLIO MANAGER, PICTET ASSET MANAGEMENT, SINGAPORE:
“It’s a confluence of things but I think it comes down to positioning. Retail investors and hedge funds have been heavily exposed to tech stocks particularly globally and the combination of some negative CEO comments on valuations overnight combined with the sharp decline in crypto has dented sentiment.
“The sell-off appears to be largely position-driven, with recent better-performing names taking the worst action. In Asia, this includes names like SoftBank and SK Hynix. Yesterday’s “investment caution” on SK Hynix was certainly something that scared retail and institutional investors.”
ORIANO LIZZA, SALES MERCHANT, CMC MARKETS, SINGAPORE:
“Why the market is inactive – I think it’s probably a little too late… We’re talking about excessive valuations, and I think they’re starting to come to the fore now. Plus, I think the market is always looking ahead, so they want to see if there’s another catalyst that’s going to maintain this market momentum.”
“In the short term, I guess how the market reacts after a sell-off like this… This time, actually, it’s a little more interesting, overall… This is the first time we’ve seen a broader market sell-off, which is, I guess, kind of asset agnostic. Usually it’s one market, but this one seems to be happening – the index market has triggered a broader sell-off and maybe that’s the sentiment of fear that’s slowly starting to creep in.”
LORRAINE TAN, DIRECTOR OF ASIAN EQUITY RESEARCH, MORNINGSTAR, SINGAPORE:
“The market is likely reflecting the overnight US sell-off due to concerns over consumption and consumer confidence. Additionally, this could also be attributed to AI-related companies being priced perfectly.”
THOMAS MATHEWS, HEAD OF ASIA PACIFIC MARKETS, CAPITAL ECONOMICS, WELLINGTON:
“This appears to be a direct response to the tech wobble in the US yesterday… The tech-heavy Asian indices, especially Korea, have all performed very well recently, so perhaps they will suffer bigger losses if sentiment changes.
“The key question is whether this will continue to be the case if the US tech sell-off intensifies. I doubt it: Asian valuations are still low compared to the US, which may limit downside if there is a major global sell-off.”
Source: Reuters
