Asian markets experienced a decline on Monday, driven by concerns over the tech sector’s valuation and the wisdom of significant investments in artificial intelligence. This shift in focus came after the Federal Reserve’s decision to cut interest rates for the third consecutive time. The tech industry has been a major driver of the global equity market surge over the past two years, with companies like Nvidia reaching significant milestones, such as becoming the first to surpass $5 trillion in valuation in October.
However, recent weeks have seen a downturn in the sector due to worries that valuations have become overstretched and that returns on AI investments may take time to materialize, if they do at all. Disappointing earnings reports from sector giants Oracle and Broadcom last week exacerbated these concerns. As a result, Wall Street saw hefty losses on Friday, with both the S&P 500 and Nasdaq shedding over 1%. This trend was mirrored in Asian markets, with Tokyo and Seoul, which have seen multiple record highs this year, leading the losses. Other markets in Sydney, Singapore, Wellington, and Taipei also experienced selling pressure, while Shanghai remained flat despite weak Chinese consumer data.
Among the biggest losers were South Korean chip giants Samsung and SK hynix, along with Japanese tech investment firm SoftBank, which tanked over 7%. Investors are now awaiting key US data releases, including job creation and inflation reports, which could significantly influence the Federal Reserve’s decision-making at its next meeting. The Fed has lowered borrowing costs at its past three meetings, citing labor market concerns, despite some policymakers’ worries about persistently high inflation.
The upcoming reports on US jobs for October and November, delayed due to the government shutdown, will be closely watched for insights into the Fed’s plans for its January rate decision. Additionally, the race to succeed Jerome Powell as the head of the Fed is gaining attention, with Kevin Hassett and Kevin Warsh mentioned as front-runners. The US president has suggested that whoever takes the helm should consult with him, emphasizing the importance of having a “smart voice” heard in monetary policy decisions.
In other financial news, the Bank of Japan is set to make its policy decision on Friday, with forecasts indicating a potential rate hike. Analysts, however, are cautious about the outlook, pointing to the weak yen and its implications for the Japanese economy. The yen has weakened to over 150 per dollar since October, driven by concerns about the country’s economic health and plans for increased spending that would require more borrowing. As markets continue to navigate these developments, investors will be closely watching for any signs of stability or further declines in the tech sector and its impact on global equity markets.
