South Korea’s Kospi tanks 8% despite US-Iran war optimism. Here are 4 reasons why
South Korean stocks were hammered on Tuesday as a global sell-off in chipmakers sent technology heavyweights sharply lower, with rising competition from China and a
South Korean stocks were hammered on Tuesday as a global sell-off in chipmakers sent technology heavyweights sharply lower, with rising competition from China and a steep fall in SK Hynix's US-listed shares weighing heavily on investor sentiment.The benchmark Kospi plunged 551 points, or 8.1%, to 6,2505. The steep decline triggered "sidecar" trading curbs on both the Kospi and the junior Kosdaq index, temporarily halting programme trading.Memory-chip maker SK Hynix dropped 11% after its American depositary receipts (ADRs) in New York fell to a record low and slipped below their initial US offering price. Samsung Electronics, another heavyweight in the index, declined 9.15%. Together, SK Hynix and Samsung Electronics account for more than half of the KOSPI's weighting, amplifying the impact of the semiconductor sell-off on the broader market.Also read: SpaceX at $100 would imply zero AI value, Morgan Stanley says1.
AI spending worriesFresh concerns over the scale of artificial intelligence spending added to the pressure on semiconductor stocks even as falling oil prices further after potential talks between US and Iran. The central question for investors is whether companies pouring billions of dollars into artificial intelligence will be able to generate enough returns to justify the spending. Chip stocks remained under pressure in the US as well, with the Philadelphia Semiconductor Index extending its decline for a third consecutive session.2. China’s new threatDevelopments in China added to investor concerns. ChangXin Memory Technologies (CXMT) made a blockbuster market debut, soaring nearly 500%, while reports emerged that a Chinese state-backed company had started producing immersion DUV lithography equipment."The market's concern lies less in CXMT's current earnings and more in its potential for accelerated capacity expansion to rival Korean companies and technology development following its IPO," Kim Seok-hwan, a Seoul-based market analyst at Mirae Asset Securities, told Reuters.The broader MSCI Asia Pacific Index fell 2.92%, with technology stocks bearing the brunt of the losses.
The Kospi dropped 7.89%, while Japan's Nikkei declined 3.86%% and the Topix fell 2.77%.3. US Fed commentaryInvestors are also facing a packed week, with interest rate decisions due from the US Federal Reserve, the Bank of Japan and the Bank of England, alongside earnings reports from major technology companies.Read more: Nvidia to invest $5 billion in Ilya Sutskever's AI startupThe US Federal Reserve will begin its two-day policy meeting on Tuesday and is widely expected to leave interest rates unchanged on Wednesday.However, expectations for a rate hike of at least 25 basis points have risen to 36.3%, from 16% a week ago, according to CME FedWatch. Markets are now pricing in an 81% probability of a rate hike at the central bank's September meeting.4. Weak global cuesUS stock futures also edged lower in early Asian trading on Tuesday as investors braced for a busy week of megacap earnings and awaited the Federal Reserve's rate decision.
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