Asian Tech Stocks Slide as AI Doubts, Rate Hike Fears Mount

Asian technology stocks experienced a sharp sell-off on Monday, led by South Korean chipmakers, as investor confidence in the artificial intelligence rally wavered amid rising bond yields and ahead of key policy decisions from the U.S. Federal Reserve and the Bank of Japan.

Widespread Tech Sell-Off

The decline was most pronounced in South Korea, where the tech-heavy KOSPI index plunged 3.1%. Major semiconductor manufacturers, which are central to the AI supply chain, led the losses:

• SK Hynix fell 4.3%
• Samsung Electronics dropped 2.5%
• LG Innotek declined 3.1%

In Japan, the Nikkei 225 slipped 1.1%, with chip-related firms also under pressure. Kioxia slumped 7.1% and Murata Manufacturing fell 3.6%. The negative sentiment extended to U.S. market futures, with Nasdaq 100 futures down 1.2%, signaling continued pressure on growth stocks.

Macro Headwinds Intensify

The sell-off is taking place against a challenging macroeconomic backdrop. U.S. Treasury yields climbed toward 5%, a level that increases borrowing costs and tends to diminish the appeal of growth-oriented technology stocks whose valuations are based on future earnings.

This move in yields follows recent U.S. inflation data that was hotter than expected. Markets are now pricing in an 86% probability of a 25-basis-point interest rate hike by the Federal Reserve this week. Adding to inflation fears, oil prices surged above $100 per barrel, fueling a broader risk-off sentiment in global markets.

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AI Rally Faces Scrutiny

Investors are also reassessing the sustainability of the AI-driven market rally after a period of significant gains. The caution comes amid fresh debate over the pace of AI development, highlighted by recent calls from Anthropic CEO Dario Amodei to slow down the creation of more powerful models on safety grounds.

South Korea's market is particularly sensitive to shifts in AI sentiment, as Samsung and SK Hynix are crucial suppliers of the high-bandwidth memory (HBM) used in advanced AI processors. The recent pullback reflects growing concerns over lofty valuations across the AI infrastructure sector.

Central Banks in Focus

Market participants are now squarely focused on upcoming monetary policy meetings. The Federal Reserve is set to announce its interest rate decision on Wednesday, followed by the Bank of Japan (BOJ) on Friday.

Traders are also anticipating a potential interest rate hike from the BOJ, a move that has recently supported the yen but added further pressure on Japanese equities by signaling a move away from the country's long-standing ultra-loose monetary policy.