Asian equities took a hit on Thursday as a global selloff in technology stocks intensified, spurred by concerns over tighter U.S. restrictions on chip sales to China.
Major markets in Japan and South Korea saw significant declines, with the Topix index falling as much as 1.5%. This drop was exacerbated by a stronger yen and heavy selling in chipmakers worldwide. Tokyo Electron Ltd. bore the brunt of the selloff for the second consecutive day, plummeting nearly 11%.
Hong Kong and mainland Chinese stocks exhibited volatility in early trading. The Hang Seng Tech Index dropped as much as 1.2%. Meanwhile, U.S. futures edged higher after the S&P 500 and Nasdaq suffered significant losses on Wednesday, with the latter experiencing its worst day since 2022, declining 2.9%.
U.S. chip giants Nvidia Corp., Advanced Micro Devices Inc., and Broadcom Inc. led a notable semiconductor gauge down nearly 7% — the largest drop since 2020. In Europe, ASML Holding NV tumbled 11% despite reporting robust orders. The Biden administration has informed allies of potential severe curbs if companies like Tokyo Electron and ASML continue providing China with advanced semiconductor technology.
Matt Maley of Miller Tabak + Co. commented on the situation, saying, “The possibility of new chip restrictions could indeed create the kind of selling that could be the catalyst for a tradable correction in the stock market. Broad indices have become very overbought.”
Treasuries remained steady in early Asian trading after minor movements on Wednesday. The Federal Reserve’s Beige Book highlighted slight economic growth and cooling inflation. Fed Governor Christopher Waller indicated that the Fed is getting “closer” to cutting rates, though not quite there yet. Australian and New Zealand bonds showed little change.
An index of dollar strength hovered around its lowest level in two months. The yen strengthened after a 1.4% rise against the dollar in the previous session, reaching a level not seen since early June. According to a former executive director at the Bank of Japan, the central bank is unlikely to raise interest rates this month and will instead cut its bond-buying more than expected to prevent further weakening of the yen.
The Biden administration faces a delicate balancing act. U.S. companies argue that export restrictions to China have unfairly impacted them, pressing for changes. Allies are hesitant to alter their policies with the U.S. presidential election just months away.
In a separate development, former President Donald Trump, during an interview with Bloomberg Businessweek, questioned the U.S.’s obligation to defend Taiwan, a key hub for semiconductor manufacturing. Sarah Bianchi of Evercore ISI noted, “Markets may view the possibility of a second Trump Administration positively. However, it is worth noting that the core of the Trump policy agenda this time – raising tariffs and restricting immigration while largely extending existing tax cuts – points in the direction of lower growth and higher inflation.”
The underperformance in tech stocks comes after a strong first half of the year, where megacaps drove market gains, stretching valuations and leaving them with a challenging setup for the rest of 2024. Jose Torres at Interactive Brokers remarked, “Much of this year’s equity gains have come from a handful of names currently under direct threat from the political arena. An important question is if the rest of the market, which generally lacks thrilling tales on a relative basis, can offset the waning momentum in ‘Magnificent Seven’ stocks.”
In Asia, upcoming data releases include June trade figures for Japan, labor market statistics for Australia, and unemployment rates in Hong Kong. In China, President Xi Jinping is set to reveal his long-term economic vision as he concludes a twice-a-decade reform conclave.
West Texas Intermediate, the U.S. oil benchmark, saw further gains after a 2.6% rise on Wednesday, as investors considered the impact of Canadian wildfires threatening 400,000 barrels per day of oil production.
Key Events This Week:
- ECB rate decision, Thursday
- U.S. initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
- Fed’s Mary Daly, Lorie Logan, and Michelle Bowman speak, Thursday
- Fed’s John Williams and Raphael Bostic speak, Friday
Market Moves:
Stocks:
- S&P 500 futures rose 0.2% as of 9:05 a.m. Tokyo time
- Hang Seng futures fell 0.3%
- Japan’s Topix fell 1.4%
- Australia’s S&P/ASX 200 fell 0.1%
- Euro Stoxx 50 futures fell 1.1%
Currencies:
- Bloomberg Dollar Spot Index was little changed
- Euro unchanged at $1.0939
- Japanese yen rose 0.3% to 155.76 per dollar
- Offshore yuan little changed at 7.2681 per dollar
Cryptocurrencies:
- Bitcoin fell 0.5% to $64,175.71
- Ether fell 0.6% to $3,394.95
Bonds:
- Yield on 10-year Treasuries little changed at 4.16%
- Australia’s 10-year yield declined two basis points to 4.23%
Commodities:
- West Texas Intermediate crude rose 0.3% to $83.11 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.