Asian stock markets plunge, KOSPI faces bloodbath amid chip competition from China
- Asian equity markets face intense selling pressure, tracking losses in US chipmakers.
- US and South Korean chipmakers come under pressure due to technological advancement in Chinese chips.
- Investors keenly await China and the US CPI data for September.
Asian stock markets face a significant sell-off in Tuesday’s session, tracking weakness in United States (US) technology stocks seen on the Columbus Day.
As of writing, KOSPI is leading losses with over 7% decline, Shanghai is down 1% to near 3,760, Nikkei 225 plunges almost 2.5% at around 67,350.
US tech stocks were weighed down by indications that Chinese chipmaker has made noticeable technological advancement in their products, leading to concerns over the monopoly of US chipmakers companies, such as Nvidia, Micron Technology, and San Disk.
According to a report from Reuters, Chinese memory chipmaker ChangXin Memory Technologies had made progress on a next-generation DRAM design known as 4F², which could increase memory density. The Reuters report also showed that Nvidia shipped 678,000 AI accelerators in China from January through June, down 44% from a year earlier, according to the IDC data.
South Korean chipmakers: Samsung and SK Hynix, which operate in a Business-to-Business (B2B) capacity and are leading sellers to Nvidia, appear as direct casualty of rising competition threat from China. Both stocks are down upto 8.5% in Tuesday’s trade.
This week, China and the US Consumer Price Index (CPI) data for September will be key triggers for global markets, which are scheduled for Wednesday. The US CPI data is expected to have a significant impact on Federal Reserve’s (Fed) interest rate expectations. Fed officials have signaled through their latest comments that they are highly concerned about elevated inflationary pressures.
Asian stocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.